Goldman Sachs Initiates AdvancePierre Foods Holdings At Neutral, Says M&A Most Likely Only Upside Catalyst

Goldman Sachs started coverage of AdvancePierre Foods Holdings Inc APFH with a Neutral rating and $27 price target, saying it fails to see a compelling investment thesis from these levels absent acquisitions.

The brokerage believes APFH can drive 2-3 percent annual volume growth going forward given end-market exposure (foodservice, C-stores, etc.). However, profits may prove volatile given cost sensitivity, primarily to beef.

"On the beef-cycle, we expect earnings visibility to be enhanced by the current and potentially prolonged beef deflation cycle, but price pass-through is catching up with lower costs and we believe benefits that could fuel upside to earnings have likely peaked," analyst Jason English wrote in a note.

As such, the analyst noted M&A may prove to be a key catalyst for the stock as management plans to pursue an acquisition agenda. If a company buys a $100 million revenue business at a 10X EV/EBITDA, English sees potential for roughly 7 percent EPS accretion.

Meanwhile, English expects 2016 EPS of $1.19 on revenue of $1.596 billion and 2017 EPS of $1.32 on revenue of $1.645 billion.

Shares of AdvancePierre closed Monday's session at $24.95.