On Thursday, Deutsche Bank (ETR:DBKGn) began coverage of Lamb Weston Holdings Inc . (NYSE: NYSE:LW), a major player in the frozen potato industry, with a Hold rating and a price target set at $81. Currently trading at $74.96, the stock has experienced a challenging year, down over 26% in the past 12 months.
The firm's coverage comes amid Lamb Weston's struggle with operational challenges and a decline in market demand over the past year. These issues have led to considerable financial impacts and subsequent revisions to the company's financial guidance. According to InvestingPro analysis, despite recent challenges, the company maintains a GOOD overall financial health score.
Lamb Weston has experienced what the analyst described as "self-inflicted setbacks" to its operations and supply chain, as well as difficulties in executing its business strategy effectively. These setbacks have been exacerbated by a softening demand in the end market. Despite these challenges, the analyst believes that the company's core business remains intact, supported by revenue growth of 9.61% in the last twelve months and a solid gross profit margin of 25.11%.
The report suggests that Lamb Weston will continue to face hurdles throughout the remainder of fiscal year 2025 and possibly into fiscal year 2026 as it endeavors to stabilize its North American operations, reset priorities, and enhance commercial execution. At the same time, the company is expected to maintain its momentum overseas.
The analyst pointed out Lamb Weston's potential advantages, such as its predominantly US-based production, which could benefit from tariff structures compared to its international competitors. This, along with a recent uptick in quick-service restaurant traffic, may contribute to the company's recovery.
However, there are concerns about Lamb Weston's current strategy to regain lost business through price investments and the potential strain this could place on the company's financial performance in the short term.
The analyst emphasized the need for management to return to the company's recognized strengths, which include high-quality products and exceptional customer service, to navigate through the existing challenges and drive recovery.
InvestingPro data suggests the stock is currently trading near its Fair Value, with additional insights available in the comprehensive Pro Research Report, which provides detailed analysis of the company's financial health and growth prospects.
In other recent news, Lamb Weston Holdings Inc. reported a slight 1% year-over-year decline in total sales for Q1 of fiscal year 2025, but exceeded sales expectations with an adjusted EBITDA of $290 million. The company has also been in the spotlight with the inauguration of a new production plant in The Netherlands, bolstering its annual production capacity by 195 million kilos.
Analyst firms have been active, with Bernstein initiating coverage on Lamb Weston with a Market Perform rating and a price target of $85.00. JPMorgan (NYSE:JPM), however, downgraded Lamb Weston's stock from Overweight to Neutral due to concerns over restaurant demand and supply-demand dynamics.
In addition, Lamb Weston attracted the attention of activist investors JANA Partners and Continental Grain, who disclosed stakes of 5% and less than 1% respectively. These firms plan to engage with Lamb Weston's board and management to discuss various issues, potentially including the sale of the company. Other analyst firms such as Citi, BofA Securities, TD Cowen, and Barclays (LON:BARC) have adjusted their price targets for Lamb Weston in light of these developments.
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