UPDATE: BMO Capital Markets Downgrades Dean Foods to Market Perform on Limited Upside
In a report published Thursday, BMO Capital Markets analyst Amit Sharma downgraded the rating on Dean Foods (NYSE: DF) from Outperform to Market Perform, and lowered the price target from $22.00 to $11.00.
In the report, BMO Capital Markets noted, “We continue to believe that Dean management's increasing focus on cost cutting, capacity rationalization, and margin improvement, even at the expense of short-term volume losses, will lead to 1) lower earnings volatility; 2) structurally higher gross and operating margins; and 3) bigger cost advantage relative to smaller competitors. Moreover, sale of DF's remaining stake in WWAV (i.e., $600 million-plus at the current market price) will enable the company to pursue a range of shareholder-friendly capital allocation alternatives, including debt refinance, share buyback, and cash dividends. However, our case for aggressively investing in DF is less persuasive given that its core dairy business is now trading at 2014 EV/EBITDA multiple of 6.1x, modestly ahead of its food peers with a similar degree of exposure to the underlying ag commodities.”
Dean Foods closed on Wednesday at $10.49.
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