Shares of Freshpet (NASDAQ:FRPT) rose modestly in premarket trading Monday, gaining about 63 basis points, after analysts at DA Davidson reiterated a Buy rating on the stock and downplayed concerns about new competition in the fresh pet food market.
The stock had recently come under pressure following reports that The Farmer’s Dog plans to launch its products on Walmart.com in April, along with discussions about a potential Kirkland-branded fresh pet food product at Costco. Despite the news, DA Davidson maintained its $98 price target, describing the recent share decline as an overreaction to headlines with limited impact on Freshpet’s underlying business.
“A spate of headlines without much weight behind them, against firming consumption trends, makes for a compelling setup; as such, we are pounding the table on FRPT-BUY,” DA Davidson analysts commented. “While acknowledging we can’t anticipate news flow day to day, we can contemplate the potential impact of each iterative item on fundamentals — and so far, there is very little cause for concern.”
The firm outlined three key reasons it sees limited competitive risk. First, Bloomberg Second Measure credit card data suggests The Farmer’s Dog is currently growing at less than half the pace of Freshpet over the past 12 weeks. Second, the analysts noted that The Farmer’s Dog costs approximately $6.97 per day to feed a 40-pound dog, about 2.4 times the price of Freshpet’s top-selling product at Walmart. Third, the firm believes The Farmer’s Dog may face difficulties expanding into traditional retail channels, given its direct-to-consumer model centered on customized meal plans.
Bank of America acknowledged that the competitor announcements have raised questions about Freshpet’s competitive advantage, particularly regarding the possibility that rivals could introduce similar products at lower price points.
However, the firm added that the new launches also highlight growing retailer acceptance and validation of the fresh pet food category, which could ultimately support broader market expansion.