My thesis on Blue Buffalo (BUFF) from August 2017
Blue Buffalo (BUFF) has all the characteristics of a capital compounder in a stable end market. A 12% revenue/18% earnings CAGR over 2017-2020; a 25x NTM P/E and 15x NTM EV/Ebitda is highly attractive for a cash generative-dominant brand, with only 6% North America share and <1% global share, and multiple levers to pull in expanding distribution and insourcing production and optimizing capital structure. We expect multiple expansion along the way as market appreciates the long run way for growth, high financial returns, and defensive business characteristics. We believe BUFF has 60% upside (30x on $1.57 of 2020 EPS discounted back 2 years) and 16% downside. Details below.
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