Costco (COSTCO) Pet Food Rivalry Fails to Shake Freshpet Stock (FRPT) Bulls

Wholesale retailer Costco COST -0.52% ▼ recently launched a private-label refrigerated dog food under its Kirkland Signature store brand. The move was seen as a direct challenge to pet food producer Freshpet FRPT -2.96% ▼ and sparked a selloff in FRPT stock, but some analysts have argued the investor fears are overstated.

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‘New Competing Kirkland Product Poses a Threat’

According to TD Cowen analyst Robert Moskow, who attended a meeting with Freshpet’s management earlier this week, the new product from Costco is similar to Freshpet’s but is 14% cheaper on a per-pound basis. The dog food is made from chicken and packaged as pellets, weighing six pounds.

Moskow acknowledges that the “new competing Kirkland product poses a threat,” given Kirkland’s reputation for high-quality products and the likelihood of some trial switching by shoppers.

However, he also contended that the upside from Costco rolling out larger new fridges stocked with Freshpet products at roughly 600 additional stores should more than offset any sales Freshpet could lose to the Kirkland launch. Nonetheless, Moskow maintained his Hold rating on FRPT stock and also stuck to his price target of $90, suggesting about 42% upside.

‘We Are Buyers on Pullback’

Chipping in, Oppenheimer analyst Rupesh Parikh made a U-turn on his concern about slowing growth at Freshpet and believes that the stock’s potential upside now better compensates for its risks.

Parikh said his team is now “increasingly confident” in the pet food manufacturer’s ability to stabilize its top-line metrics (sales and revenue), delivering at least high single-digit growth rates despite the new competitive pressure from Costco. The five-star analyst lifted FRPT shares to Buy and set a price target of $80, implying about 27% upside.

Similarly, analysts Michael Lavery and Peter Benedict from Piper Sandler and Baird, respectively, called on investors to Buy the dip, pointing to Freshpet’s sustained growth rates.

Specifically, Piper Sandler noted that “we are buyers on the pullback.” Both analysts set price targets of $87 and $90, implying about 38% and 42% upside, respectively.

Is Freshpet a Good Stock to Buy?

Across Wall Street, analysts largely remain bullish on Freshpet’s shares and have a Strong Buy consensus rating on the stock. This is based on 10 Buys and three Holds issued over the past three months.

In addition, the average FRPT price target of $86.58 implies about 37% upside.

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