On Monday, Bernstein initiated coverage on Lamb Weston Holdings Inc . (NYSE:LW) with a Market Perform rating and established a price target of $85.00. Currently trading at $78.34, the stock appears slightly undervalued according to InvestingPro analysis.
The coverage comes after Lamb Weston's shares experienced a significant drop, falling 28% from their peak in January of the current year.
Lamb Weston, known for its frozen potato products, has had a tumultuous period but is now looking to move past its operational challenges. Despite recent difficulties, the company maintains strong fundamentals with revenue growth of 9.6% and a healthy current ratio of 1.19. According to the analyst from Bernstein, past issues such as the failed ERP implementation, which resulted in involuntary customer losses, are now behind the company.
Additionally, the company's retail sales, which account for approximately 15% of its total sales, appear to be strong. This segment's growth is bolstered by the success of licensed brands such as Checker's, Arby's, and Sonic frozen fries. The analyst notes that these brands are contributing positively to the company's top and bottom line.
Despite these positive developments, the analyst also pointed out factors that could potentially slow Lamb Weston's progress. An industry-wide supply and demand imbalance may take time to stabilize, especially as competitors are projected to increase their global capacity by 4-5% over the next two years. Furthermore, the quick-service restaurant (QSR) sector in the U.S. is experiencing sluggish volume recovery trends, even with aggressive promotions like free fries.
In other recent news, Lamb Weston Holdings, Inc. has been the center of attention with various significant developments. The company inaugurated a new production plant in The Netherlands, increasing its annual production capacity by 195 million kilos. This move aims to meet the rising global demand for high-quality frozen potato products, employing 650 individuals and creating 120 new jobs.
Lamb Weston reported a slight 1% decline in total sales year-over-year for Q1 of fiscal year 2025, but exceeded sales expectations with adjusted EBITDA recorded at $290 million. Analyst firms such as Citi, BofA Securities, TD Cowen, and Barclays (LON:BARC) have adjusted their price targets for Lamb Weston, while JPMorgan (NYSE:JPM) has downgraded Lamb Weston's stock from Overweight to Neutral due to concerns over restaurant demand and supply-demand dynamics.
Furthermore, the company has drawn the attention of activist investors JANA Partners and Continental Grain, who have disclosed stakes of 5% and less than 1% respectively. These firms intend to engage with Lamb Weston's board and management to discuss various issues, including the potential sale of the company.
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