Del Monte Retains ‘Buy’ Rating (DLM)

Del Monte Foods DLM is expected to increase its LT mix margins due to Pet Food results. The company is also likely to improve its productivity and boost A&P spending. Del Monte (DLM) is scheduled to announce its F4Q10 results on June10. The company has a strong free cash flow position and net profit margins of 5.65%. Fitch has recently upgraded the company’s long term debt to BB+ from BB. Deutsche Bank has reiterated its ‘Buy’ rating for the stock with a price target of $18. The target is based on 3 equally weighted valuation methods. A DCF model with growth assumptions: 3% sales, 4-5% EBIT, 7-8% EPS/cash flow growth using a 9% WACC (via CAPM: 0.8 beta, 4.5% risk free rate, 10% expected return).