The Simply Good Foods Company (SMPL) shares rose more than 6% during Wednesday's session after the company posted better-than-expected financial results. Revenue rose 54.2% to $215.1 million, beating consensus estimates by $7 million, and non-GAAP EPS came in at 26 cents, beating consensus estimates by 11 cents. Management expects to generate $790 million to $800 million in net sales and $145 million to $150 million in adjusted EBITDA in fiscal 2020. The Quest acquisition contributed 62.5% to net sales growth.
In mid-June, William Blair initiated coverage on Simply Good Foods stock with an Outperform rating. DA Davidson also reiterated its Buy rating ahead of the third quarter financial results but lowered its price target from $26.00 to $24.00 per share. Analyst Brian Holland believes that the current backdrop in convenient nutrition is weighing on the Atkins brand, although year-to-date weakness overstates the long-term impact.
Food companies have outperformed other consumer staples during the COVID-19 pandemic as consumers look toward packaged foods as a way to cope with restaurant closures.
From a technical standpoint, the stock broke out from its 200-day moving average during Wednesday's session. The relative strength index (RSI) moved into overbought territory with a reading of 72.00, but the moving average convergence divergence (MACD) remains in an uptrend. These indicators suggest that the stock could consolidate before a further move higher.
Traders should watch for consolidation above the 200-day moving average and trendline support over the coming sessions before an extended move higher toward prior highs of around $25.00. If the stock fails to maintain its breakout, shares could retest reaction highs of around $20.50 or trendline support at $18.00. The earnings beat suggests that the long-term bias remains bullish following the Quest acquisition.
The author holds no position in the stock(s) mentioned except through passively managed index funds.