Lake Street calls Lifeway Foods 'overlooked', starts shares coverage with buy

On Friday, Lake Street Capital Markets began coverage on shares of Lifeway Foods (NASDAQ:LWAY), assigning a Buy rating and setting a price target of $25. The firm highlighted Lifeway Foods as a leading consumer packaged goods (CPG) company in the dairy sector, particularly noting its strong presence with its kefir products.

The analyst noted the company experienced substantial growth in its EBITDA, which increased by over 330% to $22 million from 2022 to 2023, alongside a 900 basis points expansion in its EBITDA multiple.

Lake Street Capital Markets pointed out that while Lifeway Foods has been recognized by the market for its impressive performance, it is still relatively under the radar. The firm believes that Lifeway's forward enterprise value to EBITDA (EV/EBITDA) multiple of 10 times is modest compared to its peers, who typically range between 15 to 20 times in both public markets and merger and acquisition scenarios.

The analyst from Lake Street Capital Markets anticipates that Lifeway Foods will continue to see EBITDA growth in 2024 and beyond. This expectation is based on the assumption that the company will prove the sustainability of its financial achievements. The firm projects that as Lifeway's financial performance becomes more apparent, the gap in its EV/EBITDA multiple relative to its peers will narrow, which would contribute to ongoing positive returns for investors.

The initiation of coverage with a Buy rating and a $25 price target is indicative of Lake Street Capital Markets' confidence in Lifeway Foods. The firm considers the stock to be a classic overlooked small-cap investment opportunity, with the potential for both growth and multiple expansions to drive further returns.

As Lifeway Foods (NASDAQ:LWAY) garners a positive outlook from Lake Street Capital Markets, real-time data from InvestingPro aligns with the optimism surrounding the company's financial health and growth potential. Lifeway's market capitalization stands at a robust $270.9 million, and the company's P/E ratio is 24.05, with a slight adjustment in the last twelve months of Q4 2023 to 23.88, signaling a fair valuation relative to earnings. The revenue growth of Lifeway Foods has been impressive, with a 13.11% increase over the last twelve months as of Q4 2023, and an even more remarkable quarterly growth rate of 17.45% in Q1 2023.

InvestingPro Tips highlight several strengths that may be key to Lifeway's potential upside. The company holds more cash than debt, indicating a solid balance sheet. Furthermore, Lifeway's cash flows can sufficiently cover its interest payments, which is a positive sign for financial stability. With analysts predicting profitability this year and a profitable track record over the last twelve months, Lifeway appears to be on a strong footing. Additionally, the company's strong return over the last year, with a 207.33% price total return, suggests that investors have been recognizing its growth trajectory. It is also worth noting that Lifeway Foods does not pay a dividend, which could imply that it is reinvesting earnings back into the company to fuel further growth.

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For those interested in a deeper dive into Lifeway Foods' performance metrics and potential investment opportunities, InvestingPro offers additional tips and insights. By using the coupon code PRONEWS24, readers can receive an additional 10% off a yearly or biyearly Pro and Pro+ subscription, providing access to valuable investment tools and data. With 10 more InvestingPro Tips available, investors can make informed decisions based on comprehensive analysis.

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