B&G's Eyes Are Too Big For Its Stomach, Credit Suisse Downgrades

B&G Foods, Inc. BGS has fallen nearly 28 percent year-over-year, and one analyst thinks it will keep losing flavor.

The Rating

Credit Suisse analysts Robert Moskow and Neel Kulkarni downgraded B&G Foods to Underperform and cut their price target from $34 to $21.

The Thesis

Shifts in consumer and retailer demands inspired recent acquisitions and investment in marketing and research and development.

“This shift has increased the volatility of the business and raised serious questions about whether it is capable of such a profound change,” Moskow and Kulkarni wrote in a Wednesday note.

The analysts suggested such investments require more than B&G can deliver, and they anticipate a stall in merger pursuits as management works to stabilize the firm. That delay, in turn, is seen to risk the valuation premium traditionally traded on.

Although management already sliced its 2018 guidance for earnings before interest, taxes, depreciation and amortization, Credit Suisse expects continued negative revisions throughout the year. The analysts consider current outlook too optimistic and reliant on core-brand price increases, which have historically resulted in decreased sales volume.

At the same time, rising interest rates limit the company’s dividend appeal.

Price Action

Shares traded down nearly 6 percent on the downgrade, trading around $28.70.

Related Links:

Why General Mills Spent $8B On A Pet Food Company

Analyst: As The Food Sector Consolidates, Hain Celestial Could Be Attractive M&A Target