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UPDATE: BMO Capital Markets Upgrades Dean Foods on Improving Operations, Lower Interest Expense

Related DF
Markets Marginally Lower In Quiet Trading Session
Shares Of Dean Foods Company Trades Higher Following Analyst Upgrade

In a report published Monday, BMO Capital Markets analyst Amit Sharma upgraded the rating on Dean Foods Co. (NYSE: DF) from Market Perform to Outperform, and raised the price target from $22.00 to $23.00.

In the report, BMO Capital Markets noted, “First, rising global milk supplies signal that Dean's raw milk costs will peak in November. We expect class 1 milk prices to decline from $20 per cwt to $17 in 1Q14 as lower feed costs, favorable weather, healthy inventory levels, and high farm-gate milk prices lead to record-high milk production in key global dairy regions. Second, DF's milk volumes should bottom out in the current quarter and improve sequentially as the loss of a portion of its private-label milk volumes are cushioned by new distribution wins as well as a likely improvement in overall fluid milk volumes. Third, stable milk spread and accelerating cost savings likely will raise DF's operating profits to $0.14-$0.16 per gallon levels. Although margins likely will remain at historical levels, new management's strategic shift from “market share leadership” to ‘cost leadership' should lead to a consistent, and measurable, improvement in profitability. Fourth, the successful, tax-efficient divestiture of non-fluid milk assets has materially lowered leverage and should lead to other value-creating actions, attracting a new investor base. We are adjusting our 3Q13 and 4Q13 EPS estimates to $0.13 and $0.27, while raising our 2014 and 2015 EPS estimates to $1.33 and $1.56, driven by improving operations and lower interest expense.”

Dean Foods Co. closed on Friday at $18.28.

Posted-In: Amit Sharma BMO Capital MarketsAnalyst Color Upgrades Analyst Ratings

 

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