Flowers Foods' Low Expectations Makes It An Attractive Buy, KeyBanc Says

Flowers Foods, Inc. FLO, a producer and marketer of packaged bakery foods, is an underappreciated stock with low expectations but should be able to deliver above-consensus results in 2018, according to KeyBanc.

The Analyst

KeyBanc Capital Markets' David Carlson initiated coverage of Flowers Foods' stock with an Overweight rating and $24 price target.

The Thesis

Flowers Foods' fiscal 2018 EPS guidance of $1.04 to $1.16 implies at the midpoint a 21 cent per share improvement from 2017, but this may not fully factor in the impact of tax reform and ongoing cost saving initiatives, Carlson said in a note. The Street's EPS estimate implies only a 20 cent per share improvement in 2018 amid concerns of higher input costs. Over the longer-term the Street is assuming a "pessimistic outlook" towards its long-term EBITDA improvement plan.

The Street may be wrong on Flowers Foods, as the company should be able to report an EPS in the upper half of its guided range of at least $1.10, even when factoring in assumptions for ongoing wage inflation, Carlson wrote. If the company is successful in delivering EPS in the higher range of its guidance, the stock should move higher.

Bottom line, the Street's "low expectations" for Flowers Foods represents an "attractive entry point" for investors.

Price Action

Shares of Flowers Foods were trading higher by 2 percent at $21.44 early Wednesday afternoon.

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