Buckingham Steps To The Sidelines Following Pinnacle Foods' Strong Run Following Activist Stake

Jana Partners recently disclosed a 9.5 percent stake in Pinnacle Foods PF and indicated it's in talks with management regarding value creation measures, including a potential sale.

The Thesis

Buckingham Research Group analyst Eric Larson downgraded Pinnacle Foods from Buy to Neutral and reiterated a $62 price target.

The Thesis

The fundamentals are fully discounted at the current valuation, with Pinnacle's sharp share-price appreciation following Jana's disclosure, Larson said in a Monday note. However, the analyst said the company still has superior innovative capacity, distribution runway and strong productivity initiatives.

Larson feels 2018 guidance estimates could still be conservative, but "degrading investor sentiment for the broader consumer and packaged foods group limits further upside to the multiple."

"In that context, a takeout scenario in the ~$68-$70/share range is likely needed to drive the stock higher," according to the analyst. "Our best/worst case price scenario is $70/$51."

Buckingham sees Q1 to face the most challenging setup in 2018 due to the mismatch between inflation, productivity and price realization. However, the firm believes the mismatch will unwind over the balance of 2018.

Price Action

Pinnacle Foods shares have added 3.4 percent in the year-to-date period.

Related Links:

Credit Suisse's Winners And Losers In The Food Space

BMO Cites US Foods Analyst Day In Upgrade