MGP Ingredients' Intrinsic Value: Potential 81% Above Share Price.

MGP Ingredients' projected fair value is $57.20 based on 2-stage free cash flow to equity. The current share price of $31.67 suggests the company is 45% undervalued. Analyst price target for MGPI is $39.00, which is 32% below the fair value estimate.

MGP Ingredients, Inc. (NASDAQ: MGPI), a spirits and food ingredients company, has seen its share price decline significantly in the past year. The company's projected fair value is $57.20 based on a 2-stage free cash flow to equity model. This suggests that the current share price of $31.67 indicates that the stock is 45% undervalued. Analysts have set a price target of $39.00, which is 32% below the fair value estimate.

The appointment of Julie Francis as President and Chief Executive Officer, effective immediately, brings a wealth of experience in the food and beverage industry. Francis has previously held senior positions at Schwan’s Company, Constellation Brands, and The Coca-Cola Company. This move is expected to bolster the company's strategic initiatives and drive growth.

MGP Ingredients operates distilleries in Indiana and Kentucky, a tequila distillery joint venture in Mexico, and bottling operations in Missouri, Ohio, and Northern Ireland. The company's portfolio includes bourbon brands Penelope, Rebel, Remus, and Yellowstone, as well as El Mayor tequila. Despite mixed financial results for the first quarter of 2025, the company reaffirmed its 2025 guidance, projecting net sales between $520 million and $540 million.

The company's debt levels are a significant concern. As of March 2025, MGP Ingredients had US$297.1 million of debt, offset by US$20.1 million in cash, leading to a net debt of US$277.0 million. The company's debt to equity ratio is 1.7, and its interest cover ratio is 17.6 times, indicating a moderate level of debt relative to earnings. However, the company's EBIT has declined by 14% in the last twelve months, raising concerns about its ability to service its debt.

The company's ability to convert EBIT to free cash flow is also a concern. In the last three years, MGP Ingredients' free cash flow amounted to 26% of its EBIT, which is less than expected. This suggests that the company may struggle to generate enough cash to pay down its debt.

In conclusion, while MGP Ingredients is currently undervalued based on its fair value estimate, the company faces significant challenges, including declining earnings and concerns about its ability to service its debt. Investors should closely monitor the company's performance and consider the risks associated with its debt levels.

References:
[1] https://simplywall.st/stocks/us/food-beverage-tobacco/nasdaq-mgpi/mgp-ingredients/news/does-mgp-ingredients-nasdaqmgpi-have-a-healthy-balance-sheet-2
[2] https://za.investing.com/news/company-news/mgp-ingredients-appoints-julie-francis-as-new-ceo-93CH-3796907