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Smart Balance (SMBL) has been acquiring smaller established healthy foods brands as of late. Most recently it just finished its acquisition of Udi's Healthy Foods. According to the investor presentation posted on Udi's website, it notes that it offers 46 SKUs across varying product categories. It also notes that 83% of Udi's sales are bread and other bakery goods. This will compliment Smart Balance's acquisition of Glutino adding additional gluten-free baked goods. It also helps Smart Balance continues to diversify its offerings from its spreads segment to better compete in the market.

That same presentation on the Udi's website puts Smart Balance as the number four stand-alone natural food company behind Hain Celestial (HAIN), Amy's Kitchen, and Organic Valley. Hain dominates with a market cap of $2.49 billion and had revenues increase 23% from 2010 to 2011. Hain offers many more brands and also has a personal care segment. Amy's is privately held and does some gluten free but mainly specializes in vegetarian meals. Organic Valley is also privately held and offers nearly all of its products in the same categories as Smart Balance. Smart Balance comes in with a market cap of $589 million. Amy's and Organic Valley only sell products under their own labels while the other two have many labels. Hain's stock is up 64% over the last 12 months while Smart Balance's is up 90%. As the demand for healthy, natural foods continues to grow, these companies are already established leaders in the niche. They all stand to climb as the market for their products continues to expand. A huge red flag would be if the food and drug administration or well respected medical group came out with a study noting that gluten-free or other category actually carried adverse health reactions. Since that's not likely to happen anytime soon based on all the positive research, this is a safe segment for the near future.

For end of year 2011 Smart Balance reported approximately $274 million in revenue. Udi's estimated FY12 revenues were in the area of $73 million. That's a 26% revenue growth just from the acquisition. Udi's sales and EBIDTA grew 170% and 152% respectively from 2010 to 2011. Based on the $73 million estimate for 2012 that means sales and EBIDTA growth slows to 36% and 62% respectively.

I have to think this will be one of the last acquisitions for a while. Smart Balance will need to work on integrating the new companies and realizing synergies and other cost efficiencies. In its first quarter guidance Smart Balance predicted $320-$330 million for the year (prior to the Udi's acquisition.) Add to that the $73 million expected for Udi's and Smart Balance will easily see $400 million in annual revenues for 2012. The share price has run up ahead of earnings and carries a hefty PE of 62.5 compared to Hain's 37.

I like Smart Balance better because I think it has more room to run. I expect it to flatten out and possibly drop to a good buy in point before third quarter earnings. Look for second quarter results to be at the higher end of guidance and expectations. The most important news will be more information on how Smart Balance thinks the acquisition will impact its forward performance and its acquisition strategy going forward. I'm staying long and will watch for that pullback after Q2 to add to my position before Q3.

Source: Smart Balance To See $15 By End Of 2012?