We See WhiteWave Foods Margin Expansion Supporting Higher Full Year Outlook, Raising Price Target: Morgan Stanley

Morgan Stanley

analysts, Matthew Grainger, John Colantuoni, and Pamela Kaufman, believe that the margin expansion in the first quarter, which was ahead of expectations, would support the company to achieve higher full-year forecast. Their comments come on the heels of the company delivering better than expected earnings for the January – March quarter. The three analysts have also expressed their optimism that WhiteWave Foods have the sustainability of best-in-class growth outlook. As a result, the brokerage has boosted its price target to $49 from $48 projected earlier on WhiteWave shares on increased estimations. The analysts' have retained their rating of Overweight on the stock of the company. Valuation Points To Continued Upside Potential The analysts believe that the relative valuation pointed to continued upside potential. The increased price objective reflected higher full year guidance. The three analysts commented, "We are increasing our 2016/17eEPS forecasts by ~2%, from $1.36/1.61 to $1.40/1.64, and continue to expect WWAV to sustain both +HSD (7-9%) organic sales growth and mid-high teens EPS growth as the company benefits from ongoing category expansion and volume-driven operating leverage. Our $49 PT (up from $48 prior) reflects ~16x 2016eEV/EBITDA, based on a 25% premium to Food peers (vs. 35% historically) and assumes WWAV can trade at parity with the average other high-growth staples peers." Margin Expansion To Support Achieve Higher Outlook Morgan Stanley felt that the first quarter margin expansion, which was better than its expectations, bode well to support higher full year outlook. The brokerage believes that the strong sales trends provided the primary boost to investors' sentiment as WhiteWave Foods also delivered strong operating leverage. In fact, it supported constant-currency margin expansion by 70 bps braving a 20 basis points headwind from European asset write-down and operating profit growth of ~24%. The three analysts think that results were strong in Americas, up more than 80 bps on an underlying basis, while constant-currency margins were flat in Europe due to its well-flagged transitional expenses in connection with third-party warehousing & distribution. That was due to the fact that the company rebuilt the biggest factory in the region. The three analysts added, "Net, these factors enabled an increase in FY guidance from $1.33-1.37 to $1.38-1.41, reflecting $0.02 of Q1 upside, $0.01 of currency improvement and further margin upside as the year progresses." At the time of writing this article, shares of the company traded 0.18% or $0.08 higher at $44.65.