Mission Produce's Record Sales Face Tariff and Cost Pressures, Testing Growth Narrative

What happened

Mission Produce reported record sales in FY25 with steady double-digit volume growth, leveraging its vertically integrated platform to expand market share amid favorable avocado demand. However, a new article highlights rising tariffs and increasing costs that threaten to erode per-unit margins and challenge the sustainability of volume-led momentum, echoing concerns in SEC filings about trade friction. DeepValue's analysis confirms these risks, noting persistent U.S.-Mexico tariff issues, high capital expenditures for international farming, and customer concentration that could pressure EBITDA margins below the 8% target. The pending acquisition of Calavo Growers adds complexity, with $25 million in synergies critical for upside but facing regulatory and integration hurdles that management may downplay. Investors should view the record sales cautiously, as the stock's valuation at 8.3x EBITDA already discounts growth assumptions, leaving little buffer against these headwinds.

Implication

Record sales growth is positive but masks underlying vulnerabilities, as tariffs on Mexican imports and rising costs could quickly compress margins and disrupt volume momentum, as seen in past discrete charges. The stock trades at a premium valuation of 8.3x EBITDA, embedding optimistic assumptions about steady growth and synergy capture that may not materialize given the crowded market narrative. DeepValue's 'WAIT' rating is reinforced by the need for concrete progress on Calavo approvals and cost savings, without which EBITDA could decline toward bear-case levels. Monitoring quarterly margin performance and regulatory updates over the next 6-12 months is essential, as any shortfall could trigger a re-rating toward the $11 attractive entry point. For now, patience is warranted to avoid overpaying for a story that hinges on flawless execution amid escalating trade and integration challenges.

Thesis delta

The new article does not shift the core thesis but amplifies near-term risks, confirming that tariff and cost pressures are actively testing Mission's growth trajectory. This reinforces DeepValue's view that investors should wait for evidence of margin resilience and Calavo progress before committing capital, as the current price already reflects much of the positive sales narrative. No material change is warranted, but vigilance is required on quarterly EBITDA prints and integration milestones to assess downside protection.