Credit Suisse Slashes Dean Foods To Underperform

• Shares of Dean Foods Co DF have appreciated 18.24 percent over the past six months, reaching a high of $19.25 on November 9.
• Robert Moskow of Credit Suisse has downgraded the rating on the company from Neutral to Underperform, while lowering the price target from $19 to $18.
• Given the challenges being faced by the dairy processing sector, Moskow believes that the stock has lower than average upside, as compared to its industry peers, over the next 12 months.

Analyst Robert Moskow elaborated that the dairy industry cycle had become very favorable for Dean Foods in 2015, allowing the company to meaningfully reduce and stabilize its input costs.

However, Moskow expressed concern that “consensus estimates will go lower from here as the dairy cycle corrects itself and farmers cut back on production to boost dairy prices.”

Despite the positive sentiment on the stock, following the company’s beat and raise 3Q results, Moskow believes that Dean Foods’ stock would going forward.

The company reported its 3Q EPS above the consensus forecast, while generating adjusted EBITDA of $101 million and 660 bps improvement in gross margins, driven by “lower dairy costs and SGA ex-advertising,” as we;; as a mere $2 million increase in incentive compensation.

Management guided to full year EBITDA of $400 million, meaningfully above the current forecasts, with above consensus EPS guidance of $1.15-$1.25.

The EPS estimates for 2015 and 2016 have been raised.