On Tuesday, Truist Securities revised its price target for shares of MGP Ingredients (NASDAQ:MGPI) to $85 from the previous $95, while reiterating a Buy rating on the stock.
The adjustment follows last Thursday's announcement from the company, which indicated a 10% reduction in its 2024 guidance, leading to a 28% decline in the stock's value, in contrast to the Consumer Staples Select Sector SPDR Fund (XLP) which edged up by 0.4%.
The price target reduction reflects a reassessment of the company's value in light of recent developments. Despite the cut in the target price, Truist Securities maintains a positive outlook on MGP Ingredients, underpinned by the company's substantial tangible assets and its position within the earnings landscape.
MGP Ingredients, with an enterprise value of $1.6 billion, which includes a market capitalization of $1.3 billion and $300 million in debt, is seen as having a valuation that should not fall below its real asset value.
Truist Securities highlighted several key assets, including the Lawrenceburg, IN distillery, appraised at $450 million years ago, and the former Luxco branded portfolio, acquired for $475 million in 2021. This portfolio has since seen growth in sales and profits and includes the rapidly expanding Penelope brand.
Additionally, MGP Ingredients is reported to have at least $350 million of barreled distillate inventory, which is listed at cost on the balance sheet. The value of this inventory is expected to appreciate over time, as whiskey ages and its quality improves. Conservative estimates place the value of this aged inventory at a minimum of $500 million.
In conclusion, Truist Securities emphasizes that MGP Ingredients remains profitable, operates with less than 2x leverage, and possesses real and tangible assets worth at least $1.4 billion, not accounting for the Food Ingredient business. This analysis supports the firm's belief that MGP Ingredients' stock is currently trading at a floor valuation.
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