Wells Fargo Encouraged With Bob Evans Brand After Meeting With Post Management

Post Holdings Inc POST is progressing well with its latest acquisitions and its cereal execution remains strong, according to Wells Fargo.

The Analyst

Wells Fargo’s John Baumgartner maintains an Outperform rating on Post Holdings with a $114 price target.

The Thesis

An investor meeting with Post’s management provided increased visibility and triggered more confidence in the company’s strong execution, Baumgartner said.

Post made two acquisitions in 2017, namely Bob Evans Farms and Weetabix. The integration of Bob Evans continues to be on track and the vision for the segment is to expand it horizontally, across adjacent side dishes categories.

At Weetabix, Post is already planning for Brexit related contingencies, which could impact packaging availability and costs. The recent EBITDA margin of 34 percent appears sustainable by Weetabix. Even if some reinvestment reduces this to the low-30 percent range, the segment’s EBITDA margin will still be significantly higher than the mid-20 percent range it achieved when Post acquired the business, Baumgartner mentioned.

Strong execution has positioned Post's U.S. cereal business for continued outperformance. The company now intends to focus on “perfecting internal capabilities and driving organic growth, rather than engaging in new large-scale M&A,” the analyst wrote in the note.

Price Action

Shares of Post Holdings traded at $91.31 at time of publication, up 1.2 percent on the day.

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