Needham initiated a buy rating on Rao's parent company, Sovos Brands, saying the pasta sauce brand could become a $1 billion company.
Sovos Brands , which owns the pasta sauce brand Rao's, is "full of pasta-bility while making sauce and cents," according to Needham. The firm believes Rao's could grow more than 75% over the next three to four years and become a $1 billion brand. "Growth in pasta sauce coupled with brand extension into adjacent categories provides ample opportunity for Rao's brand growth," analyst Matt McGinley wrote in a Wednesday note.
"While we expect the Rao's brand to generate the majority of Sovos' growth, we think it benefits from operating multiple brands, as [that will] allow it to leverage its manufacturing and distribution, and provide cross-selling opportunities that can drive scale efficiencies and push the operating margin higher," he continued. Needham said the company is well-positioned for mergers and acquisitions due to its healthy balance sheet.
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