Vital Farms, the leading U.S. brand offering pasture-raised eggs, announced a proposed secondary stock offering on Nov. 10. The company had a successful IPO in August. How did the stock react to the proposed secondary offering? What is the VITL stock forecast?
What does Vital Farms produce?
Vital Farms is a leading U.S. brand that offers ethically produced pasture-raised foods. The company started as a single farm in Austin, Tex. in 2007 by Matthew O’Hayer and his wife, Catherine. Vital Farms' unique proposition is the humane treatment of farm animals and sustainable farming practices. The company's products include shell eggs, butter, hard-boiled eggs, ghee, egg bites, and liquid whole eggs. The eggs come from the pasture-raised hens.
The chickens enjoy at least 108 square feet of roaming room in fresh pastures. According to the company, the chickens have the freedom to forage for local grasses, succulents, and wildflowers. Vital Farms has carved out a niche in the egg industry. The eggs are sold to more than 13,000 stores nationwide including to Albertsons, Kroger, Target, Publix, and Walmart.
Vital Farms' IPO
Vital Farms closed its IPO on August 4, 2020. The company got listed on Nasdaq under the ticker symbol "VITL." Vital Farms raised nearly $200 million, which gave it a valuation of $1.3 billion. The stock rose by more than 60 percent on the day of its listing. The company had to increase its share price to $22, which was initially projected at $15–$17 per share.
CEO Russell Diez-Canseco commented on the IPO. He said, “Becoming a public company gives us access to capital to support our continued growth while also giving us the freedom to keep doing and being the change we want to see in the food system.”
What is a secondary stock offering?
On Nov. 10, Vital Farms announced a secondary offering of 5 million shares. The shares were offered by certain selling stockholders of Vital Farms. The selling stockholders also expect to grant the underwriters a 30-day option to purchase up to an additional 750,000 shares of common stock. The company won't receive any proceeds from the sale of the common stock offered by the selling stockholders.
A secondary offering is the sale of new or closely held shares of a company, which has already done an IPO. There are mainly two types of secondary offerings.
- Dilutive: major shareholders offer their holdings for sale
- Non-dilutive: new shares are offered for sale
A secondary offering usually gets a negative stock price reaction. In the case of a dilutive secondary offering, the negative price reaction is understandable. However, in case of non-dilutive secondary offering, the shares are only changing hands and the proportional value of a single share doesn't change. Theoretically, they shouldn’t impact the stock price, which isn't usually the case. Large investors selling stock can also sour the investor sentiment for the stock, which drives prices down.
For VITL, the proposed secondary offering is comprised of insider sales that would increase the float by nearly 40 percent. The stock dived after the news of the offering.
VITL's stock price
After rising by more than 60 percent on the day of its listing, VITL’s stock price hasn't seen a strong price reaction. It reached a peak of $41.5 in August. Before Nov. 10, VITL’s stock price performance was almost flat since its listing. On Nov. 10, VITL’s stock price fell by 11.8 percent.
The company also announced its third-quarter results on Nov. 10. While the company’s results were strong with net income more than doubling during the quarter, the stock witnessed a sharp fall. The stock mainly fell on the news of the secondary offering.
VITL's stock forecast
Currently, VITL is covered by five analysts. Among the analysts, three recommend a buy and two recommend a hold. Analysts' median target price of $43 represents a potential upside of 21 percent.
Currently, investors are looking for sustainable investments. Vital Farms is a sustainable investment with its humane farming methods. Consumers are willing to pay more for organic produce as compared to commercial and mass-produced products. The stakeholder-friendly business model encourages investors to bet on the stock. The recent decline in the stock seems to be already pricing in the negative impact of the secondary offering.