After a huge run up in 2019, many investors are still expecting positive returns from stocks in 2020. It should be no surprise that expectations are muted compared to what was seen last year. After all, it’s not normal for the Dow and S&P to both rise well over 20% and the NASDAQ or rise over 30% in a single year. Where things get interesting is that many investors are wanting new ideas rather than just chasing into the mega-cap winners of recent years. This is where some of the lesser-known mid-cap stocks and small-cap stocks that are still earnings money and have predictable businesses come into play in portfolios.

24/7 Wall St. evaluates dozens of analyst research reports each day of the week to find some potential new ideas for investors to consider. The Simply Good Foods Company (NASDAQ: SMPL) was an unusual analyst call on Monday, February 10, 2020. Goldman Sachs has moved Simply Good Foods to its prized Conviction Buy List and set a $34 target price. If this proves to be correct, that would represent a 52-week high and then some and it would represent nearly 50% in implied upside.

As a reminder, most analyst calls at this stage of the bull market have upside projections of 8% to 10% on average for established companies within the S&P 500 or other comparable indexes. This is a projected upside of 47% from the prior $23.13 closing price, and it is still higher than the $31.34 high put in back in 2019.

The company is the parent of the brands of Atkins, SimplyProtein ad Quest Nutrition. The latter brand was acquired late in 2019. Goldman Sachs had initially started Simply Good Foods with a Buy rating and a $32 target price back in November of last year. Food fads and dieting fads have proven to be tricky over time, but one thing that this company has going for it is that food in general, particularly if not at a major price premium, is considered to be defensive — and the current trends favor higher protein levels over carbohydrates, also playing into the hands of Simply Good Foods.

Another issue to consider with $34.00 target price is that the consensus analyst target price was down at $31.56 and the street high target price is up at $35.00. Even at the current 48% projected upside, this call is not that aggressive versus the consensus call and is still not even the street-high target price.

Another recent call came from Jefferies late in January, but that Buy rating came with a $32 target price that implied upside of 30% at that time.

From August of 2018, Simply Good Foods managed to grow revenues from $431.4 million to $523.4 million for the year ending August of 2019.

With a consensus analyst estimate of $0.90 in earnings per share (EPS) in 2020 and $1.08 EPS in 2021, the current prices would imply a blended forward earnings ratio of about 24 times. That is not cheap, but the implied revenue growth of 65% in 2020 (to $866 million) and 14.5% in 2021 (to $992 million) are both generally higher than most food brands.

Simply Good Foods has a $2.25 billion market cap that leaves much more potential upside if it can keep up with growth trends. One thing the shares do not have is a dividend.

It is important to review charts and short interest when solely comparing an analyst call as the purpose of an investing idea. The latest stock review also shows that Simply Good Foods had used the area around $23.00 as support on five different occasions since last June. Its short interest of 3,876,373 shares as of January 15 represented about 2 days to cover and that was the highest short interest reading going back a full year.

While Simply Good Foods used up some of its cash and now has more long-term debt, here are some highlights for its updated 2020 guidance which were offered a month ago:

• full-year net sales of $850 million to 870 million;
• adjusted EBITDA $154 million to 158 million;
• outlook for legacy Atkins net sales and Adjusted EBITD was left unchanged from views last October;
• expects legacy Atkins net sales growth for the year to be at the high end of its long-term net sales growth target of 4% to 6%;
• and legacy Atkins Adjusted EBITDA to grow at a somewhat higher rate than its expectation for net sales.

Shares of Simply Good Foods were last seen trading up 3.3% at $23.89 on Monday, with a 52-week trading range of $19.13 to $31.34.

As a reminder, no investor should ever use a single analyst recommendation to guide an investment decision.

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