EF Hutton analyst Michael Albanese initiated coverage of Reborn Coffee Inc REBN with a Buy rating with a price target of $5.50.
The analyst said the market for retail coffee is large, with little total market growth.
He added that specialty coffee products continue to take market share and are a large driver of expected future growth as consumer preferences shift towards more carefully crafted coffee beverages.
Albanese estimates REBN will have 30 retail stores in a few years, producing upwards of $1.0 million in sales per store with nearly 20% store-level EBITDA margins and accelerating momentum in its franchising operations.
He believes that its current enterprise value of $14.7 million does not properly reflect the opportunities facing the company today and that Reborn, with modest assumptions about its growth plans, is worth closer to $60.0 million.
Through 1H22, comparable sales have increased 75% Y/Y. Store-level EBITDA turned positive and improved to 3.8% in 2021 as newly open stores reached profitability and negative impacts from COVID subsided.
The analyst expects REBN to improve store-level margins to 20% in the longer term.
As consumer preferences gear towards premium quality coffee, driven by improvements in bean sourcing/harvesting and technologies around processing/roasting, the company’s diversified supply chain, unique washing process, and innovative brewing technologies could stand to benefit from the fourth wave of coffee production and a consumer shift towards premium products.
Capital expenditure, the need for additional funds, inflation, and supply chain pressures are some of the risks in the business.
Price Action: REBN shares are trading higher by 4.72% at $1.33 on the last check Thursday.
