Pinnacle Foods Upgraded To Buy At Goldman As Next M&A Transpiring

Goldman Sachs’ Jason English believes the current valuation of Pinnacle Foods Inc PF offers a compelling entry point into the stock.

English upgraded the rating on the company to Buy, while raising the price target from $48 to $57.

Compelling Stock

“We continue to favor small cap consolidators in Food that may benefit from accretive acquisitions or become targets on their own,” the analyst mentioned.

English pointed out that Pinnacle Foods’ P/E has declined from the 15 percent premium the stock was trading at in July 2015 to a 5 percent discount in July 2016. However, on a free cash flow basis, the company now carries a best-in-class yield of 7 percent.

This, along with expectations of EPS CAGR of 10 percent through 2018 and potential for M&A over the next 12 months, the analyst believes Pinnacle Foods offers an attractive investment opportunity.

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Potential For Improvement, M&A

In the center-store grocery division, English noted that recent weakness, “compounded by CEO transition, has caused investors to question fundamental footing.”

However, there could be a path to improvement, driven by better pricing. The analyst believes the consensus expectations for 2016 are achievable, while those for 2017 are beatable.

According to the Goldman Sachs report, “Prior acquisitions by PF have proven value-creative and management has reiterated its intent to remain active in M&A. PF has also been an M&A target (and willing seller) in the past and could again.”

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