On Friday, Roth/MKM adjusted its stance on MGP Ingredients (NASDAQ:MGPI), a producer of distilled spirits and specialty wheat proteins and starches. The firm lowered its price target on the company’s shares to $100 from the previous $120. Despite the reduction, Roth/MKM continues to recommend the stock with a Buy rating.
The price target adjustment follows MGP Ingredients' decision to shut down its Atchison white goods production facility. The analyst from Roth/MKM noted that the facility's output was on the decline, negatively impacting revenue and gross margin. This move is expected to streamline the company's operations and improve earnings before interest, taxes, depreciation, and amortization (EBITDA) margins.
While the closure of the Atchison facility is seen as a positive step for operational efficiency, it comes with a trade-off. Roth/MKM anticipates that MGP Ingredients will experience slower revenue growth than previously estimated. This tempered outlook on revenue is the primary reason behind the new $100 price target.
Despite the lowered expectations for revenue growth, Roth/MKM remains optimistic about MGP Ingredients' overall performance. The firm's Buy rating indicates a belief that the stock still holds potential value for investors. The analyst stated, "We believe MGPI took the proper steps in closing its Atchison white goods production facility... We expect the remaining businesses to generate higher EBITDA margins."
The updated price target of $100 reflects the balance between the anticipated benefits of improved profitability against the backdrop of slower revenue expansion. MGP Ingredients, based in Atchison, Kansas, has yet to publicly respond to the revised price target and maintained Buy rating from Roth/MKM.
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