Freshpet An Intriguing Small-Cap, Says Baird

Baird is bullish on the shares of Freshpet Inc FRPT after its Q2 results show that velocity metrics heading in the right direction.

"[W]e see further acceleration across 2H16 as new products hit shelves. While GM trends bear monitoring, FRPT still appears poised to deliver a material acceleration in EBITDA growth across 2H16 (helped in part by logistics savings)," analyst Peter Benedict wrote in a note.

Velocity growth (as measured by weekly sales/average store) for the second quarter improved to 4.5 percent from first quarter 1.4 percent. Management continues to expect FY16 sales of greater than $137 million and FRPT-defined EBITDA greater than $18.5 million.

Baird believes Freshpet is positioned to be one of the most compelling long-duration consumer growth stories in the market. It sees significant revenue and market share growth over time as brand awareness improves and retail distribution points continue to expand.

Further, the company has named Billy Cyr (former CEO of Sunny Delight and Procter & Gamble executive) CEO effective early-September 2016. The analyst expects the veteran to bring "incremental relationships, operational discipline, and analytical rigor to the organization."

"With valuation lagging CPG peers (~12x FY17E EBITDA vs. peers at ~16x), key drivers of our long-term thesis intact (disruptive/trend-right product, ample distribution growth runway, significant profit growth opportunity), and an industry veteran poised to join as CEO, we remain Outperform-rated with a $10 price target," Benedict noted.

At time of writing, sahres of Freshpet surged 30.39 percent to $10.77.