Market Overview

As Grocery Stores Cut Cereal Shelf Space, Refrigerated And Frozen Foods Are Wanted Products

As Grocery Stores Cut Cereal Shelf Space, Refrigerated And Frozen Foods Are Wanted Products
Related BOBE
The Week Ahead: Conferences Take Center Stage, Earnings Begin To Trickle In
Benzinga's Top Upgrades, Downgrades For September 22, 2017
Related K
8 Biggest Price Target Changes For Friday
Benzinga's Top Upgrades, Downgrades For February 8, 2019
Spotlight On Walmart, Samsung And CAGNY (Stocks To Watch Podcast) (Seeking Alpha)

When analysts at Piper Jaffray downgraded Kellogg Company (NYSE: K), they highlighted an ongoing trend that could hurt food makers: Grocery stores are redesigning stores to decrease shelf space. Move aside, dry cereals; hello there, refrigerator-cased breakfast options!

Needless to say, food companies heavily reliant on breakfast cereals are concerned, but there are options on the table.

Likely recognizing this headwind, Post Holdings Inc (NYSE: POST), a notable cereal and breakfast-foods company, agreed to acquire Bob Evans Farms Inc (NASDAQ: BOBE), a maker of refrigerated and frozen breakfast items and side dishes. But the acquisition came at a hefty price, according to Gadfly's Tara Lachapelle.

Post will be paying around 15 times Bob Evans' projected annual adjusted EBITDA of $107 million or close to 16 times trailing 12-month EBITDA, Lachapelle noted. By comparison, prior deals in the food space occurred on average at a 14 times EBITDA multiple over the past five years and a multiple of 10 over a longer period.

If anything, this demonstrates how important it is for cereal and breakfast companies to expand outside grocery stores' middle aisles to fuel growth, she noted. "Post, the maker of Honey Bunches of Oats and other cereals, is paying a rich price to add more popular refrigerated breakfast foods and side dishes to its supermarket offerings," she said. Cereal and canned soups are among the worst performing food categories, with a meager growth prospect moving forward. But Bob Evans' products are sold in prime real estate in grocery stores, so investors appear to be happy with the deal.

At the end of the day, Post presented to investors an acquisitive growth strategy at a time when other food companies are sitting back and doing nothing to address the problem.

Related Links:

Bring Back Our Growth: United Natural Foods Serves Up Q4 Beat

Kroger's Turnaround: No One Said This Was Going To Be Easy

Latest Ratings for BOBE

Sep 2017William BlairDowngradesOutperformMarket Perform
Jul 2017BerenbergInitiates Coverage OnBuy
May 2017William BlairInitiates Coverage OnOutperform

View More Analyst Ratings for BOBE
View the Latest Analyst Ratings

Posted-In: Analyst Color News Commodities M&A Top Stories Markets Analyst Ratings Media Best of Benzinga


Related Articles (BOBE + K)

View Comments and Join the Discussion!

Latest Ratings

CBBMorgan StanleyUpgrades10.0
GDCredit SuisseDowngrades184.0
GEOJP MorganDowngrades26.0
TRUERBC CapitalDowngrades0.0
View the Latest Analytics Ratings
Don't Miss Out!
Join Our Newsletter
Subscribe to:
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
Your weekly roundup of hot topics in the exciting world of fintech.
Thank You
for registering for Benzinga’s newsletters and alerts.
• The Daily Analysts Ratings email will be received daily between 7am and 10am.
• The Market in 5 Minutes email will be received daily between 7am and 8am.
• The Fintech Focus email will be received every Friday between 2pm and 5pm.

Emerald Isle Mints Green For Investors

19 Stocks Moving In Friday's Pre-Market Session