10 Reasons Why JPMorgan Turned Bearish On Dean Foods

JPMorgan named multiple risks it's projecting for Dean Foods Co DF as the driver of its Friday downgrade of the stock. 

The Analyst

Analyst Ken Goldman downgraded Dean Foods from Neutral to Sell and lowered the price target from $9 to $6.

The Thesis

Dean Foods is unlikely to meet consensus EPS expectations from 2018 through 2020, Goldman said in the downgrade note. (See the analyst's track record here.)

Goldman attributes his newly bearish stance to the following factors:

• A likely third-quarter earnings miss.
• Raw milk cost inflation.
• A slackening in demand for fluid milk.
• Customer attrition risk.
• The possibility of Dean ceding share to milk alternatives.
• Mix headwinds associated with the shift toward private label.
• Doubts over the effects of cost-saving initiatives seeping down to the bottom line.
• Potential red flags regarding reduced disclosures and corporate governance.
• Cash constraints.
• Valuation.

Goldman expressed concerns over dairy cost inflation later this year and early in 2019.

While European activist investor VV  Value Vals AG continues to build its stake in Dean Foods, Goldman said it's unclear what actions could be taken to create meaningful shareholder value. 

JPMorgan reduced its Q3 bottom-line estimate from a profit of 13 cents per share to a loss of 5 cents per share versus a break-even consensus estimate. The firm lowered its 2018 and 2019 EPS estimates to 41 and 60 cents, respectively, and introduced a 2020 estimate at 59 cents.

Despite the recent weakness in Dean Foods shares, Goldman said he's projecting further downside ahead. 

The Price Action

Dean Foods shares were down more than 6 percent at $8.20 before the close Friday. 

Related Links:

BMO Cites US Foods Analyst Day In Upgrade

Credit Suisse's Winners And Losers In The Food Space