Goldman Identifies Near-Term Catalysts For Nomad Foods' Growth

Goldman Sachs believes that Nomad's management has recently delivered a significantly below-consensus earnings outlook, which paradoxically, also presents a promising investment opportunity for them.

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The stock of Nomad Foods, the parent company of Birds Eye (in Europe) and Findus (in North America) has been upgraded by analyst Jason English from neutral to buy. He believes that Nomad is currently at a favorable investment point.

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“Even after contemplating higher re-investments and interest expenses, we believe that estimates have now bottomed and that the company's robust sales growth has the potential to flow down to higher earnings per share through the year,” English wrote in a client note he published on Monday.

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“Considering that NOMD's valuation level is near a trough, both when viewed as a part of its history and when compared to broader food peers, this presents an attractive investment opportunity with favorable risk/reward characteristics in the years to come," English concluded. 

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Goldman Sachs believes that even though the London-based company will be able to reset investor expectations as a result of lower earnings guidance, the forecast is likely to be conservative in nature and will likely result in upward analyst revisions in the future.

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Furthermore, Goldman believes that the current valuation of Nomad is an attractive one compared to Nomad's historical levels, as well as its peers.

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“Nomad's valuation levels have come in significantly over the past year, partly as a result of guide-downs earlier in FY22 since input cost inflation had a relatively lagged effect (compared to peers in the U.S.), and securing multiple rounds of pricing has proved to be significantly more challenging and prolonged across multiple European markets,” English explained. 

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The analyst added, “As a matter of fact, not only does its current valuation level on consensus estimates lag its historical levels significantly, but its bottom-tier valuation is appealing when compared to our overall Food coverage, which has only slightly lower growth expectations over the next two years.”

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There is no change in English's price target of $21, which implies a 21% upside over Friday's closing price. There has been little change in the stock since 2022 when it slid 32% after falling 29% in 2021.