Shares of American pet food company Freshpet Inc (US:FRPT) finished Thursday with a solid gain of +15.9% after trading -2.5% lower for most of the day.

The rally which began at 3pm was the result of an article that was initially released in the Wall Street Journal, claiming activist investment firm Jana Partners had plans to push Freshpet to make changes that would boost the stock price or to explore possibilities of being acquired.

The move comes after Freshpet announced a range of organizational changes on the 7th of September while reiterating full year guidance as pressure continues to mount with FRPT’s stock trading more than -50% lower year to date.

These changes involved reshaping the group’s organizational structure to enhance their capabilities to support long-term growth. The changes also included a shake-up of management positions that included CFO Heather Pomerantz intending to step-down and various other movements and changes of roles beneath “C” level management.

Jana Partners stated that they believe Freshpet could be an attractive target for larger competitors.

Shortly after the article in the WSJ, a schedule 13D was filed with the SEC for FPRT by the activist investor.

In the filing, Jana disclosed a 9.6% stake in Freshpet with the reason being that “they believe the shares are undervalued and represent an attractive investment opportunity”.

Jana stated that they intend to have discussions with Freshpet’s board regarding several points listed below:

• Evaluating a potential strategic sale of the business to competitors with lower costs of capital
• Capital allocation and capacity expansion initiatives
• Operations, fill rates, costs, free cash flow, brand building and margin execution
• Investor communication
• Management along with compensation and incentives
• The board composition and governance matters

The filing and headlines across various news sources has put Freshpet in front and centre stage of the market with management likely now to come under increasing pressure to make changes that will avoid further shareholder value destruction.

Senior Research Analyst Michael Lavery from Piper Sandler considers the latest action by Jana as affirmation of the Freshpet brand with its consumer proposition and belief that management execution has the ability to improve.

Lavery believes FRPT’s strong top-line growth is sustainable with margin improvement should be achievable but will take time. Piper Sandler remains ‘overweight’ rated on the stock with a positive long term view.

Elsewhere, at Cowen Equity Research, analyst Brian Holland cheered the move as being ‘helpful’ in the near term which may have the ability to shift the narrative by setting a floor in the share price. Cowen remains ‘outperform’ rated on the stock with a bullish $97 price target.

FRPT has a consensus ‘overweight’ rating and average price target of $66 across the street.

Freshpets most recent second quarter results saw the company miss adjusted EBITDA forecasts with a figure of $3.9 million compared to the streets’ expectation of around $13 million. Group sales of $146 million were broadly in-line with market expectations.

When analyzing the underlying options market trends for FRPT, it is clear that the market has been extremely bearish over the course of 2022. This is explained by Fintel’s put/call ratio of 2.72 for FRPT. The ratio was much higher in June and recovered before recently spiking over September since the result.

This ratio is calculated by assessing all disclosed open put and call interest in the market for a specific stock. A ratio skewed towards 0 suggests bullish sentiment exists in the stock with call option volume outweighing put option volume, while a number above 1 would indicate put volumes are larger than call volumes.

This article originally appeared on Fintel

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