The company's organic volumes witnessed a drop in three consecutive quarters following the previous two years' 1.0 percent to flat growth. As a result, analyst Eric Gottlieb initiated the company's shares with a Neutral rating and target price of $16.00, implying modest upside potentials from the current levels.
Aside from these, the brokerage said, "The company's independent distributor model has come under scrutiny as the definition of independent vs. company employee is being questioned.
"Nearly two dozen lawsuits have been brought by drivers, and now the company is facing a compliance review by the Department of Labor under the Fair Labor Standards Act. These events should limit the stocks potential, and be an overhang regardless of performance until an outcome can be better ascertained."
However, the analyst pointed out that Flowers Foods reached 85 percent of the population with opportunity still available, mainly due to the expansion through acquisition history.
He cited that his fiscal year 2017 EPS estimate of $0.95 is lower by $0.03 from consensus estimates on 1.3 percent sales growth. Gottlieb expects the company to deliver EPS of $0.92 for the fiscal year 2016, which would be a penny less than the consensus.
At last check, Flowers Foods was up 0.5 percent at $14.94.
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