Analyst Actions: Dean Foods PT Raised, Outperform Maintained at Credit Suisse; Shares Dip 1%

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Credit Suisse analysts have raised their price target on Dean Foods Company ( DF ) to $13 from $11.76 a share, while maintaining their Outperform rating on the stock.

"We are adjusting our target price on Dean Foods to reflect the distribution of WWAV shares to shareholders that took place on May 23. Our $13/share (from $11.76/share) target price represents 23% upside to equity holders over the next 12 months," said Credit Suisse.

Credit Suisse View

"We view Dean Foods as a compelling free cash flow generator with optionality for financial de-leveraging, share buyback and dividends. We believe that stock merits a valuation premium to its commodity grain and protein processing peers (ADM, Bunge, Tyson, and Smithfield Foods) due to the consistency of its "pass-through" business model and the positive catalysts over the next 18 months.

"Instituting a dividend will attract a new set of yield-hungry investors to the stock for the first time. We conservatively estimate a $0.16/share dividend for 2014 (1.6% yield). But the dividend has the potential to go much higher than that as free cash flow steps up to $125 million in 2014 (a 9.6% yield) and perhaps $150 million in 2015 (a 11.5% yield). We expect management to give more clarity on its dividend policy by the end of 2013 when it finishes paying capital gains taxes on the sale of its Morningstar business to Saputo.

"Dean's ownership of $600 million of WhiteWave shares provides optionality. We would like to see the company do a little of everything with the proceeds: reduce debt by $200 million, buy back $200 million of shares, and hold back the rest as a cushion for dividends. By our math, the benefits of these actions alone provide $0.12 of incremental upside to EPS in 2015. We are raising our 2015 EPS estimate to $0.94 (from $0.82)."

Shares of DF are down



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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This article appears in: Investing , Commodities

Referenced Stocks: DF

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