Lamb Weston Is A Compelling Investment Opportunity, Says Analyst

Stifel analyst Matthew E. Smith reiterated a Buy rating on Lamb Weston Holdings Inc LW with an unchanged price target of $115.

Yesterday, the company provided long-term financial targets, reiterated the FY24 outlook, and boosted share repurchase authorization.

Long-term growth targets include low-to-mid single-digit revenue growth, including balanced volume and price/mix contributions, high-single-digit EPS growth, and EBITDA growth of mid-to-high single digits each on an organic basis, noted the analyst.

Industry volumes are expected to grow 2% to 4% through 2027, and industry capacity additions are expected in the range of $5.6b pounds, suggesting the utilization rate for the industry will remain in the mid-90s.

This trend, the analyst believes, remains supportive of a rationale competitive environment.

The analyst noted that the company’s $500 million shares buyback announcement remains an opportunity in the near term, especially at the prevailing valuation.

Last week, the company raised its outlook with its 1Q earnings report, with revenue of $6.8-$7.0 billion representing 27% to 31% growth and EBITDA of $1.540-$1.620 billion.

The analyst continues to estimate FY24 EBITDA of $1.595 billion and revenue of $6.862 billion, including 7% underlying sales growth.

The analyst noted that the controversies of volume decline and margin expansion potential have been addressed.

The analyst continues to believe Lamb Weston is a compelling investment opportunity with an advantaged growth outlook relative to packaged foods peers and a favorable industry structure that supports strong earnings growth potential.

The analyst believes Lamb maintains some of the strongest pricing power in the industry to accommodate the inflation given the industry structure.

Price Action: LW shares are trading lower by 7.87% at $84.61 on the last check Thursday.