On Jun 27, we upgraded leading specialty food company,
Diamond Foods, Inc
) to Neutral from Underperform. This was based on the company's
strong bottom-line results for third-quarter fiscal 2013 and its
improved prospects. Our new investment thesis is supported by a
Zacks Rank #3 (Hold).
Why the Upgrade?
We believe that the vertically integrated business model
allows Diamond Foods to effectively adapt to market trends and
exploit new opportunities. Moreover, the company's nut roasting
facilities and patented glazing technologies provide a
self-stable glazed nut for the mass market.
Diamond Foods is swiftly progressing with its planned cost
containment and operational initiatives. We consider that the
company's turnaround strategies - such as improving price
realization, lowering underperforming SKUs and reducing
dependency on discounting - have started bearing results, as
evident from improved margins and earnings per share in
third-quarter fiscal 2013. Moreover, Diamond Foods expects future
results to depict more sustained growth of its brands, arising
from product innovation and differentiation, improved cost
structure and rebuilding of healthy relationships with walnut
Further, Diamond Foods is focusing on gaining its lost market
share by expanding the existing product lines and introducing new
products in the United States. Management's strategic plan rests
on providing higher-margin branded products at premium price
points. The branding strategy includes a marketing program that
is designed to build consumer awareness and customer loyalty
through targeted TV advertising, unique packaging and in-store
However, near-term headwinds remain, with fourth-quarter sales
projected to fall at a faster rate than the previous quarter.
Further, we believe that the challenges related to procuring
walnut supplies and mending Diamond Food's ties with growers are
denting the company's performance. Moreover, the company's high
dependence on few retailers might prove unfavorable in case there
is a hitch in business negotiations.
Other Stocks to Consider
Till any further upgrade in Diamond Foods' Zacks Rank, better
performing stocks in the food industry include
Flowers foods, Inc
Omega Protein Corp
B&G Foods Inc.
) - all of which carry a Zacks Rank #1 (Strong Buy).
B&G FOODS CL-A (BGS): Free Stock Analysis
DIAMOND FOODS (DMND): Free Stock Analysis
FLOWERS FOODS (FLO): Free Stock Analysis
OMEGA PROTEIN (OME): Free Stock Analysis
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