Why Mission Produce Stock Is Rocketing Higher Today
Key Points
Mission Produce saw sales decline 24% as avocado pricing declined while volume rose as the market "normalized."
Despite the sales drop, adjusted EBITDA rose 5% thanks to improving margins.
Ultimately, Mission's outperformance potential may hinge on whether its recent acquisition of Calavo Growers thrives.
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Shares of the leading vertically integrated avocado-selling behemoth Mission Produce (NASDAQ: AVO) soared 11% higher as of 11 a.m. ET on Tuesday after the company reported solid, but mixed, second-quarter earnings. After the stock dipped to $15 in April this year, then to $10 before today's spike, the market's reaction may be more relief than any outrageously good Q2 numbers.
Sales declined 24% in Q1 (but beat analysts' expectations) as avocado prices fell 36% while volume jumped 15% in a normalizing avocado pricing environment. Despite the sales decline, Mission's adjusted EBITDA rose 5% as its margins remained resilient and rose slightly. However, the figure that stole the show was management's guidance to generate $86 million in adjusted EBITDA at the midpoint in the second half of the year. For a company with an enterprise value of just $1 billion, this is pretty attractive guidance and shows that Mission isn't outrageously priced for its potential.
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Additionally, Mission Produce closed on its acquisition of fellow avocado peer, Calavo Growers, reinforcing its position as the No. 1 player in the niche. Management originally said they expect to see $25 million in synergies from the acquisition, but raised it to "a minimum of $25 million" during the Q2 earnings call. Like Mission, Calavo generates the bulk of its sales from avocados, but it also has a packaged guacamole business that could add significant value to Mission's existing operations. I'll be watching this packaged food segment's growth closely over the coming years, as it could provide some stability to Mission's inherently cyclical business.
Trading at 9 times EV/EBITDA and 17 times forward earnings, Mission Produce stock is about as cheap as it has been since going public in 2020. That said, I'm not sure the company's long-term growth story is exciting enough for me to consider buying it, since I try to hold for at least five to ten years. While I really like the potential of the packaged food business, Mission's unavoidable cyclicality will keep me away from investing.
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Josh Kohn-Lindquist has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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