), Zacks Rank #1 (Strong Buy), manufactures, markets, and
distributes branded food products. Its brands are well
known by consumers and include the Birds Eye, Duncan Hines, and
Mrs. Paul's product lines. It recently acquired Wish
Bone, adding to the mix of strong brand names. The company says
that its products are found in 85% of American homes and are
category leaders, holding a number one or number two market share
position in ten of twelve category offerings.
Earnings estimates are rising:
Analysts are optimistic about the earnings outlook for
Pinnacle. Over the last 60 days, earnings estimates have
been revised up six times. The Zacks 2013 and 2014
Consensus Earnings per Share Estimates have increased $.02 to
$1.55 and $.07 to $1.73 respectively. Earnings per
share are expected to expand 11.6% in 2014.
Valuation is attractive:
Pinnacle Foods is priced at 15.4 times 12 month forward
earnings and at a discount to its peer group which is trading at
16.1 times 12 month forward earnings. Likewise, its PEG ratio is
1.16 compared to 1.92 for the peer group. The market is
paying only a slight premium for earnings growth.
Pinnacle pays a respectable dividend:
Pinnacle has a dividend yield of 2.75% which is competitive to
the 10 year treasury yield. The company is targeting
a payout ratio of 50% which leaves cushion for future
The company has also strongly grown free cash flow in recent
years. Free cash flow has risen from $88 mln in 2009 to
$173 mln last year and posted a 25% compounded annual growth rate
over the three year period. The strength of free cash flow
should be supportive to the dividend and future growth
Looking under the hood, the company has a net operating loss
which can be applied to future profits to reduce cash
taxes. 75% of the loss is expected to be utilized through
Pinnacle has reduced its leverage ratio (net debt dividend by
earnings before interest, taxes, depreciation, and amortization)
from 7.7x in 2008 to 4.2x in June of 2013. The company was
recently able to refinance some debt and is touting an annual
interest savings of $100 mln in the wake of recent capital
Pinnacle's stock has been correcting and may be
approaching technical support:
After a run up post its March IPO, Pinnacle has set back in
recent weeks and is approaching potential chart support level in
the $25 area. The correction from $28.50 has taken some of
the excess post the IPO out of valuation and may set up an
attractive entry level.
Marketing via the Internet:
Pinnacle is using social media to build brand recognition and
use. Its Duncan Hines Community has seen members grow 367%
since January 2012 and is approaching 2 mln. A solid
marketing plan complements the favorable trend in earnings
estimate revisions and inexpensive valuation.
Put Pinnacle at the top of your shopping list. This
stock may offer your portfolio stability, growth opportunity, and
income during a period when political events in Washington make
investors uneasy about the economic outlook.
PINNACLE FOODS (PF): Free Stock Analysis
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