Local Bounti Corp. (LOCL:NYSE) recently announced during its Q4/21 earnings report that it acquired Pete's. Based on this news, ROTH Capital Partners increased its target price on the Montana-based produce company to $9 per share from $8, reported analyst Brian Wright in a March 18 research note. The current share price is around $6.59.
"We view the company's Pete's acquisition as demonstrating a critical skill, prudent capital allocation," Wright wrote.
Pete's is an experienced, 25-plus-year, high-tech vertical farm that grows leafy greens in greenhouses. Over the last five years, Pete's consistently generated gross margins of about 45% with facility level EBITDA of around 20%, higher than those of Local Bounti.
With the acquisition, for a total consideration of $122.5 million ($122.5M), Local Bounti gains two operating facilities in southern California and a third, not yet up and running, in Georgia. The latter is expected to come online in Q2/22, the same quarter in which Local Bounti-Pete's deal is expected to close.
"We view the acquisition price as reasonable at just four times [Pete's] 2022 run rate revenues," estimated at $30M, wrote Wright. Pete's run rate revenues in 2021 were 22.7M.
Wright highlighted the benefits of the transaction to Local Bounti. First, it will increase the company's revenue going forward, adding about $30M in annualized revenue this year alone.
ROTH now estimates Local Bounti's 2022 revenue to be $22M, up from its original $4M projection. Revenue in 2023 is now expected to be $69.7M, up from $26.5M. Forecasted 2024 revenue is now $164M versus $106M previously. Consequently, Local Bounti will be able to reach its goal of achieving long-term gross margins of 43%.
"We believe the company's prior $462M revenue target for 2025 remains intact with the pathway varied based on the Pete's acquisition," Wright wrote.
These figures compare to Local Bounti's full-year 2021 revenue, which was $0.64M. The company missed the $0.7M expectation, an immaterial event, Wright noted, given the anticipated benefits of the Pete's acquisition. Local Bounti's Q4/21 revenue was $0.3M.
The acquisition should also result in efficiencies. For instance, Local Bounti plans to supplement Pete's growing process by starting lettuce using its stack technology then moving it to Pete's high-tech greenhouse to finish the cycle. Also, Local Bounti, with its future facilities, intends to employ Pete's growing practices. One such facility is currently under construction in Pasco, Wash., and should start generating revenue in Q4/22.
The acquisition will also substantially reduce Local Bounti's short- and long-term execution risk.
ROTH rates Local Bounti Buy.
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Disclosures for Roth Capital Partners, Local Bounti Corporation, March 18, 2022
Regulation Analyst Certification ("Reg AC"): The research analyst primarily responsible for the content of this report certifies the following under Reg AC: I hereby certify that all views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or
will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
ROTH makes a market in shares of Local Bounti Corporation and as such, buys and sells from customers on a principal basis.
Shares of Local Bounti Corporation may be subject to the Securities and Exchange Commision's Penny Stock Rules, which may set forth sales practice requirements for certain low-priced securities.
ROTH Capital Partners, LLC expects to receive or intends to seek compensation for investment banking or other business relationships with the covered companies mentioned in this report in the next three months. The material, information and facts discussed in this report other than the information regarding ROTH Capital Partners, LLC and its affiliates, are from
sources believed to be reliable, but are in no way guaranteed to be complete or accurate. This report should not be used as a complete analysis of the company, industry or security discussed in the report. Additional information is available upon request. This is not, however, an offer or solicitation of the securities discussed. Any opinions or estimates in this report are subject to change without notice. An investment in the stock may involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Additionally, an investment in the stock may involve a high degree of risk and may not be suitable for all investors.