Analyst Actions: Dean Foods Upgraded To Outperform, Target Raised $3 at Credit Suisse
Credit Suisse says: "Mispriced Asset Poised For Re-Valuation Following Split-Up & Div Introduction; UPGRADING to OUTPERFORM (from Neutral); Raising TP to $21 (from $18)."
"After meeting with the management of Dean Foods and WhiteWave over the past week, we believe that the market is under-valuing the stub of Dean Foods leading up to the distribution of WhiteWave shares. We are upgrading Dean Foods to Outperform (from Neutral) and raising our 12-month target price to $21/share (from $18) to reflect a 5.5x EV/EBITDA multiple for the Dean stub and a conservative value of $17/share for WhiteWave. While we think the near-term upside to the shares is compelling, we still harbor concerns longer term about Dean given the persistent overcapacity in the dairy processing industry, declining per capita volume trends, and what appears to be declining negotiating power with certain retail customers.
"Distribution of WhiteWave shares will remove an overhang on Dean's stock. We view the choppy trading pattern in the stock as temporary. Investor sentiment on stand-alone Dean is growing more positive, but Dean's 87% ownership of WhiteWave makes it difficult to build a new position until Dean distributes the shares. The other complicating factor is that the split with WhiteWave will result in Dean's exit from the S&P 500 and index funds own a little more than 20% of Dean's shares. These issues may linger for a short time after Dean executes the distribution of WhiteWave shares in late May. But we think investors should act now while the underlying asset is mispriced rather than waiting for an even cheaper entry point."