Natural Grocers by Vitamin Cottage BUY


US$19.35 BUY 
Target: US$30.00

Currently operating over 80 store locations, Natural
Grocers by Vitamin Cottage is a retailer focused
exclusively on natural and organic groceries (~65% of
sales), dietary supplements (~25% of sales), and
body/pet care products and health-minded books
(collectively ~10% of sales). Store locations span 14
states primarily across the Western US, with a geographic
concentration in Colorado and Texas.
All amounts in US$ unless otherwise noted.

Consumer & Retail — Health, Wellness and Lifestyle

Investment recommendation
We view Natural Grocers as well positioned in a favorable
industry with a growth equation that should drive attractive
revenue and EPS growth.
Investment highlights
 NGVC delivered EPS in line with consensus ($0.01 below us)
on $2M in revenue upside. Comps of 3.7% bested our 2.5%
estimate, and were very resilient despite heightened
competitive pressure.
 Quarter to date Q1 comp approaching 5%, bolstering our
confidence in the turn in comp momentum. A plethora of
initiatives, along with easing compares and new competitive
pressure having peaked should yield continued comp gains.
 F2015 EPS guidance in line with consensus and EPS growth
only impaired due to higher incentive comp YOY.
 F2015 EPS reduced $0.01 to $0.65, while we introduce
F2016 EPS of $0.79, equating to 21% growth.
 $30 target unchanged. The valuation of 28x forward earnings
looks full, but at 8.5x EBITDA we expect expansion. Our
target reflects 11.5x C2016 EBITDA.


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