Credit Suisse analysts have raised their price target on Dean
Foods Company (
) 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
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
"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
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