Wells Fargo Raises Post Holdings Price Target After Q1 Beat

Post Holdings Inc POST reported first-quarter revenue and EBITDA that were ahead of expectations Thursday and raised its FY19 guidance.

The results highlight resilience, with a combination of stable cereal sales from value consumers and incremental growth from premium licensed brands, according to Wells Fargo. 

The company was also able to manage capacity to resume growth in the nutrition space, while the refrigerated business has potential for EBITDA growth in the mid-single digits, the sell-side firm said.  

The Analyst

Wells Fargo’s John Baumgartner maintained an Outperform rating on Post Holdings and raised the price target from $114 to $120.

The Thesis

Post Holdings reported adjusted EBITDA of $293 million, significantly ahead of the Street’s expectation of $279 million. Net sales, adjusted gross margin and adjusted EBITDA margin were all higher than expected, Baumgartner said in a Monday note. 

The cereal maker raised the lower end of its adjusted EBITDA guidance for FY19, taking the range from $1.19-$1.24 billion to $1.20-$1.24 billion.

Wells Fargo increased its FY19 EBITDA estimate from $1.235 billion to $1.24 billion. EPS estimates for FY19 and FY20 were raised from $4.85 to $5.32 and from $6.05 to $6.27, respectively.

Post Holdings holds upside potential for FY19 EBITDA from volume growth and cost synergies, while free cash flow generation could reduce leverage by the end of the year, Baumgartner said. Despite these positives, Post Holdings stock trades at a 10-percent discount to U.S. food peers, and execution and upside are not priced in, the analyst said. 

Price Action

Post Holdings shares were down 0.8 percent at $96.37 at the time of publication Monday. 

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