Why Is JPMorgan Pouring Into TreeHouse Foods?

• The share price of TreeHouse Foods Inc. THS has appreciated 11.82 percent over the last one month, to reach $80.525 on February 1.
• J.P. Morgan’s Joshua A. Levine has upgraded the rating on the company from Neutral to Overweight, while raising the price target from $88 to $98.
• With 28 percent return potential and expectations of 35 percent earnings growth in both 2017 and 2018, Levine believes that the stock currently offers an attractive buying opportunity.

While mentioning that the consensus forecasts might prove to be too low, analyst Joshua Levine explained that the constructive view of the company was based on three factors.

These factors include expectations of “1) a legacy business benefitting in the near term from easier comparisons; 2) guidance rising over time; and 3) out-year earnings estimates increasing to more fully reflect the acquisition of ConAgra’s Private Brands business,” Levine said.

Although the company’s balance sheet appears relatively full, historically, the stock and the company have both benefitted from consumer downturns.

In addition, “with 2016 guidance having been announced and the secondary offering completed, we think the biggest headline hurdles are likely in the past,” according to the J.P. Morgan report.

Not only has the stock historically outperformed in challenging economic environments, Treehouse Foods is 100 percent focused on North America, does not have any debt that are due before 2019 and is relatively insignificant exposure to currency fluctuations.

Also, Levine sees “management’s guidance for deal accretion as conservative” and believes that “out-year Street estimates need to increase.”