Citing recent supply chain challenges, Credit Suisse lowered expectations for the company’s sales performance ahead of the release of its Q3 2021 earnings report next month.
The revised coverage has decreased expected 2021 revenue for the Swedish oat milk maker from $694 million to $685 million, and has lowered its target stock price from $30 per share to $24, although the stock is still expected to outperform. In a report, equity research analysts at the bank pointed toward “pervasive supply chain bottlenecks and rising costs” across industries as cause for the updated guidance. In particular, Credit Suisse cited a lack of clarity from the company on its timeline for opening up new production facilities and when it expects to increase capacity.
Oatly is currently working to add new facilities and production lines in North America, Europe and Asia, but Credit Suisse noted that “shortages of materials, labor, and transport” are likely to slow down construction and will drive up costs. As Oatly has repeatedly struggled to keep up with high demand, the global supply chain crisis threatens to put the company back in a position of losing sales to competing oat milk brands, the report noted.
However, despite the short term challenges, Credit Suisse said it expects the Oatly brand to remain strong within the growing plant-milk category and cited the “megatrends” of wellness and sustainability as advantages for the company.
“Until there is more visibility into the cost and timing of the capacity buildout, revenue growth may be constrained and the timeline for margin expansion is uncertain,” the firm stated. “We expect robust category growth long-term and Oatly’s brand [is] resonating with customers; we think they will remain a global share leader.”
Oatly is still expected to report significant revenue growth for the year. In 2020, the company reported $421.4 million in revenue and is projected to hit $2.6 billion by 2024. Over the past year Oatly has grown its gross margin through increased in-house production volume, but Credit Suisse said it “may have to more heavily rely on co-packers to meet demand and keep pace” in the category.
The report comes as Oatly has seen its stock price continuously slide since peaking in early June, with the stock now down around 22% since the company began trading shares in May. The price was impacted this summer by a short sell report that alleged the company had overstated its sustainability bonafides and warned Oatly was unlikely to achieve profitability. During the company’s Q2 earnings call, Oatly CEO Toni Petersson called the report “false and misleading” and said the company had formed a special committee which found the allegations to be unfounded.
“The special committee has completed the review, and I’m pleased to say that we continue to fully stand by the accuracy and efficacy of our reporting,” Petersson said in August.
While Credit Suisse has tempered its expectations, other Wall Street analysts have recently been bullish on Oatly. Earlier this month, JPMorgan upgraded the company from an Overweight rating to Neutral, with analysts stating that the company’s upside is “far greater than the downside risk” and that the low stock price and valuation doesn’t capture the company’s “true top line potential.” An aggregate of 17 analyst ratings by Seeking Alpha showed most firms are optimistic about the company’s potential for growth.
In addition to increasing production capacity, Oatly has also been investing in innovation opportunities. Last week, the company announced plans to open a new research and innovation center at Lund University in Sweden to “explore the potential of oats.” The project is expected to employ 30 new scientists with potential to add about 100 more researchers to future innovation hubs around the world.
“For more than 25 years, we have developed great-tasting, oat-based products that have been designed for human nutrition and as a solution for a more sustainable food system,” said Sofia Ehlde, Oatly’s EVP of food innovation, in a press release. “We believe this new research and innovation center will both improve our existing products and lead to new, innovative oat-based foods.”
Also this month, Oatly made a fashion statement with the launch of a new upcycled clothing line. The limited edition denim jackets feature slogans advocating for plant-based lifestyles and are available for $250 each on the company’s website.
Oatly is scheduled to deliver Q3 earnings results on November 15.