Del Monte Retains ‘Buy’ Rating (DLM)

Del Monte Foods (NYSE: DLM) is expected to increase its LT mix margins due to Pet Food results. The company is also likely to improve its productivity and boost A&P spending. Del Monte (DLM) is scheduled to announce its F4Q10 results on June10. The company has a strong free cash flow position and net profit margins of 5.65%. Fitch has recently upgraded the company’s long term debt to BB+ from BB.

Deutsche Bank has reiterated its ‘Buy’ rating for the stock with a price target of $18. The target is based on 3 equally weighted valuation methods. A DCF model with growth assumptions: 3% sales, 4-5% EBIT, 7-8% EPS/cash flow growth using a 9% WACC (via CAPM: 0.8 beta, 4.5% risk free rate, 10% expected return).