Stephens: Time To Buy Dean Foods

With Dean Foods Co (NYSE: DF) presently having an improving go-to-market platform, analysts at Stephens upgraded DF from an "Equal Weight" rating to an "Overweight" rating on Tuesday."We are raising our rating on Dean Foods to Overweight from Equal-Weight given our view that the Company is well positioned to deliver on growth targets given an improving go-to-market platform, increasing efficiency in the production and distribution network, and favorable commodity input costs," the firm commented.Stephens gave DF a $22 price target is based on 15x-16x their F2017 EPS estimate of $1.38."Dean targets mid-single-digit average annual EBIT growth," noted the firm. Stephens expects that earnings should be supported by a benign dairy environment along with the Company's cash flow, and balance sheet over the next 4 quarters.Dean Foods' business strategy has evolved and become more balanced over the last 12 months.The company's business strategy has made a strong transformation and has improved its balance between cost savings and revenue management. "While the Company will continue to target annual cost productivity savings of $80 million (~1.1 percent of F2016E sales), our sense is that Dean is now positioned to focus on optimizing value/volume/price/mix," the firm commented.Global dairy prices outlook is benign.Stephens sees the outlook of worldwide dairy prices as benign largely due to small and slow production cuts. The firm also noted forecasts of heavy inventories, and a depressed import demand from Russia and China."Year-to-date, DF has generated free cash flow of $242 million, up from ($41.4 million) in the year-ago period. The free cash flow improvement is primarily a result of a more balanced business model that has benefited from increased core business profitability as well as a more benign working capital environment," the firm noted.