Market Overview

Food Stock Pair Trade? Deutsche Bank Upgrades Dean Foods, Downgrades Pinnacle Foods

Related DF
How Dairy Stocks Could Milk Gains From The Trans-Pacific Partnership
Worst Performing Industries For October 7, 2016
Benzinga's Weekend M&A Chatter
Pinnacle Foods Remains ConAgra's Most Likely Takeover Target

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 2016BB&T CapitalDowngradesBuyHold
Feb 2016Deutsche BankMaintainsBuy
Feb 2016BernsteinUpgradesMarket PerformOutperform

View More Analyst Ratings for DF
View the Latest Analyst Ratings

Posted-In: Deutsche BankAnalyst Color Upgrades Downgrades Price Target Analyst Ratings


Related Articles (DF + PF)

View Comments and Join the Discussion!