Does Boulder Brands Buyout Make Pinnacle Foods A Can't-Miss Stock?

Pinnacle Foods announced on Tuesday that it would acquire Boulder Brands for $975 million. The company indicated that, combining synergies and previously recognized cost savings, it could drive an approximated 50 percent rise in EBITDA, reaching ~$93 million by 2017.

This projection, combined with $47 million in NPV tax benefits, results in a purchase price multiple of 10x EV/EBITDA net of tax savings (~13.2x on 2016 consensus EBITDA).

Related Link: Vetr Crowd Upgrades Whole Foods To Strong Buy

Some Takeaways

In a report issued Wednesday, analysts at Morgan Stanley shared a few comments about Pinnacle Foods, following the acquisition announcement. For starters, they noted that while the purchase seems consistent with the company’s strategy of expanding its portfolio of health and wellness categories, it is “far from transformational.”

The firm’s model and the company’s expectations point toward roughly 6 percent non-GAAP EPS accretion by 2017.

However, Pinnacle did assure that the Boulder acquisition does not mean it will not be conducting a more important purchase in the near-term.

Moreover, the experts added, what Boulder provides is more diversification to Pinnacle’s product portfolio, shifting the business mix into categories that are growing faster.

Overall, Pinnacle does not look like a can't-miss stock to Morgan Stanley yet. An Equal-Weight rating and $45 price target (which implies almost no upside from current valuations) imply a more cautious approach to the shares.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.