DA Davidson On Flowers Foods: Stock Already Reflects Solid Near-Term Potential

While the current macro environment is favorable for Flowers Foods, Inc. FLO, the near-term prospects for the company are already reflected by the stock after its outperformance so far in 2019, according to DA Davidson.

The Analyst

DA Davidson’s Brian Holland initiated coverage of Flowers Foods with a Neutral rating and a price target of $24.

The Thesis

An increase in wheat prices has allowed Flowers Foods to realize higher pricing and lower merchandizing, Holland said in a note.

Management has indicated promotional levels are at their lowest in the past five years. The analyst added that the company is gaining market share, albeit partly due to M&A.

“That said, we believe the admittedly favorable setup—reflected in our above consensus model—is more fully priced into the stock, which has outperformed its Packaged Foods and Meats peers year to date,” Holland wrote.

While Flowers Foods has recorded higher-than-expected gross savings so far, driven by lower spend on purchased goods & services and reduced headcount, an increase in labor and transport costs, as well as production disruptions, have “weighed on progress,” the analyst said.

Holland said the company could announce further bakery closures in the near term for better supply chain optimization. He added, however, that there was limited visibility into such initiatives.

Price Action

Shares of Flowers Foods were trading nearly flat at $23.85 at time of publishing.