BMO Capital Initiates AdvancePierre Foods At Outperform, Lays Out 4 Points Of Shareholder Value

BMO Capital started coverage of AdvancePierre Foods Holdings Inc APFH with an Outperform rating and $29 price target, which implies more than 15 percent upside from current levels.

"AdvancePierre, in our view, is a conservative investment vehicle that should outperform its peers, as its new – albeit experienced – management team continues to reshape the company to deliver above-average top-line growth and steady margin expansion through internal actions," analyst Kenneth Zaslow wrote in a note.

Zaslow said the sandwich maker would drive shareholder value by:

• 1) "Generating above-average industry volume growth, reflecting secular growth, its advantaged profile/product mix, and whitespace opportunities."
• 2) "Capitalizing on its dynamic pricing model to drive volume/margin opportunities."
• 3) "Driving margin expansion from ongoing operational improvement opportunities, favorable operating leverage, and lower corporate expense"
• 4) "Focusing its cash flow on refinancing/debt reduction, dividend, and bolt-on acquisitions."

Zaslow expects AdvancePierre to generate 2016 EPS of $1.04 and 25-30 percent EPS growth in 2017 ($1.34), on reacceleration of sales growth from nearly 5 percent volume growth; EBITDA margin expansion of 50-100 bps, and deleveraging of its balance sheet and debt refinancing.

"Notably, our estimates appear conservative and would benefit from operational outperformance, as we estimate that AdvancePierre will derive 80% of its EPS growth in 2017 from lower interest and corporate expenses," Zaslow added.