Food Stock Pair Trade? Deutsche Bank Upgrades Dean Foods, Downgrades Pinnacle Foods
In separate reports published Thursday, Deutsche Bank analyst Eric Katzman upgraded the rating on Dean Foods Co (NYSE: DF) from Hold to Buy and raised the price target from $17 to 19, while downgrading the rating on Pinnacle Foods Inc (NYSE: PF) and maintaining the price target at $45.
Referring to Dean Foods analyst Eric Katzman said, "With the "DairyPure" brand initially appearing in 4Q14, it is likely consumer concerns around the new label would have been evident already…Even a modest price premium could materially lift very low margins, but we recognize some risk if the strategy fails."
While expressing increased optimism around the DairyPure national milk brand opportunity, Katzman highlighted the company's continued cost savings.
In the report Deutsche Bank noted, "With possible ice cream volume upside and still modest Class I cost, we expect 2Q15 (likely to be reported in early August) EPS of $0.27 vs. our previous $0.25 est." The EPS estimates for 2015 and 2016 have been raised from $0.98 to $1.04 and from $1.09 to $1.17, respectively, to reflect "slightly better category volume and cost savings vs. rising dairy cost / A&P spending."
Regarding Pinnacle Foods, Katzman said that the company's shares had appreciated due to M&A speculation to "where risk/reward is no longer favorable."
Increased competition in cake mix and recent salad dressing recall result in concern over fundamentals and possible risk to 2H15. "We admit M&A speculation and strategic developments are critical to stock performance these days but any shift to a fundamental focus is a risk to the stock," the Deutsche Bank report stated.
Katzman expects the company to report 2Q operating EPS of $0.34, versus consensus expectations of $0.35. Pinnacle Foods is expected to report 2.5 percent growth in sales to $633 mn, driven by M&A, and 1 percent growth in EBIT to $87 mn.
Latest Ratings for DF
|Feb 2016||BB&T Capital||Downgrades||Buy||Hold|
|Feb 2016||Deutsche Bank||Maintains||Buy|
|Feb 2016||Bernstein||Upgrades||Market Perform||Outperform|
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