It's Not Over Flowers Foods Investors, There's More Gains Coming According To This Stephens Analyst

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In a report published Friday, Stephens analyst Farha Aslam maintained an Overweight rating on Flowers Foods, Inc. FLO, while raising the price target from $25 to $28 to reflect the company's robust growth opportunities, improvement in operations, consistent cash flow and conservative balance sheet.

The company reported its F2Q15 results with the operating EPS ahead of the estimates, consensus and the year-ago quarter, driven by robust margin improvements. Direct store distribution sales rose 2.1 percent from the year-ago quarter. The weakness in volumes was driven by the exit of some private label business.

Although warehouse sales were up 0.3 percent year-on-year, they reflected a 1.1 percent decline in volume and a 1.4 percent rise in pricing, driven by easy comps and better performance of private label cakes.

Gross margin continued to improve, rising 110 bps year-on-year, while operating margin increased 130 bps year-on-year. Aslam also reported, "Sale rates were down 100 BPS and plant efficiencies were up 50-60 bps to 92 percent. Flowers should benefit from low commodity input costs."

According to the Stephens report, "Flowers announced the acquisition agreement for Dave's Killer Bread, the largest organic bread company in the US… With anticipated fiscal 2016 sales of $160 million to $170 million, Dave's Killer Bread generated a revenue compound average growth rate of 32 percent over the past three years."

The FY2015 EPS estimate has been raised to reflect "an improving product mix, positive pricing dynamics, a benign commodity environment and improving operations, particularly with regards to plant efficiency and stale rates," the Stephens report said.

The FY2016 EPS estimate has been raised to reflect expectations of accretion worth $0.03 from the Dave's Killer Bread acquisition.

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