Analyst Downgrades Bob Evans Farms Inc., Says New CEO Might Revive Spin Off

Bob Evans Farms Inc.

lost roughly $300 million in market capitalization since telling investors late Tuesday that it won't spin off its packaged food business. The Midwestern restaurant and pork sausage company changed hands recently at $46.80 down 21 percent. Miller Tabak's Stephen Anderson downgraded the company to Hold and cut his target nearly 16 percent to $53. Anderson said nixing the spin-off idea Tuesday was "the biggest negative" included with a disappointing third-quarter earnings report. The company, under pressure from activist shareholder Sandell Asset Management, fired its CEO in December and explored the sale of its food unit. Anderson held out hope that Bob Evans may revisit the spin off proposal when it names a permanent CEO. Directors Douglas Benham and David Head, both members of the company's CEO search committee, are "the leading contenders" for the job, according to Anderson. Both directors were elected to the board in August from a slate proposed by Sandell, Anderson noted. Although naming a new CEO "could be a catalyst," it won't be sufficient to revive the company's share, according to Anderson. Bob Evans also said Tuesday it hired J.P. Morgan to explore alternatives for its real estate. Sandell, which owns nearly 7 percent of Bob Evans, has pushed for a sale lease-back or real estate investment trust. Anderson espoused a third real estate possibility: selling company owned restaurants to franchisees. All of the 562 Bob Evans outlets are currently owned and operated by the company. A franchise system would provide "a short-term financial windfall and a steady stream of cash flow" that would reduce financial volatility, Anderson said. Also Tuesday, Bob Evans cut its 2015 outlook and announced a cost cutting plan which Anderson said wasn't sufficiently detailed.