Pinnacle Foods Vs. Peers: A Growth Story Through Sales Rather Than Cost-Cuts

Pinnacle Foods Inc PF is the top pick among food stocks among analysts at BMO Capital Markets.

BMO Capital Markets' Kenneth Zaslow commented in a research note that there are several reasons to support his bullish stance. First, the company's synergy targets following its acquisition of Boulder Brands will prove to be conservative given Boulder Brands' inflated cost structure.

Second, Zaslow is expecting the input costs of egg whites, a key component of Pinnacle Foods' gluten-free portfolio, to fall 70 percent through the end of 2016 and another 40 percent in 2017.

Moving on, Zaslow stated that unlike Pinnacle Foods' peers in the food sector, management has the ability to drive sustainable growth with "top-tier top-line growth." By comparison, many of its peers achieve growth through restructuring and cost-savings programs.

More importantly, Pinnacle Foods' baseline sales growth outpaces the weighted average of its categories which translates into higher gross margins of at least 60 basis points this quarter.

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

The analyst also expects Pinnacle Foods to boost its dividend by more than 10 percent, which implies a payout ratio above 50 percent.

Finally, Zaslow stated that recent uncertainty regarding the CEO change, a "muted" initial 2016 guidance, the lower probability of a transformative Reverse Morris Trust transaction and limited acquisition speculation relative to its peers create a "compelling entry point."

Shares of Pinnacle Foods remain Buy rated with a price target raised to $56 from a previous $50.