On Wednesday, AB Bernstein issued a company note on Dean Foods Co DF amid a decline in milk input costs and the launch of the "Dairy Pure" national milk brand. Analysts at Bernstein upgraded Dean Foods to Outperform and raised their target price from $21 to $25.
Alexia Howard and Elyn Rodriguez, analysts at Bernstein, wrote, "With a 30 percent decline in Class I milk input costs from peak levels, 2015 began to see a rebound in Dean Foods' fundamentals. 2016 is also expected to see fairly benign milk prices with a further -6 percent decline as per the USDA forecasts. This should lead to continued improvement in fresh milk volumes...Thus far, the launch of the 'Dairy Pure' national milk brand has reversed volume share losses in more profitable branded milk…"
Analysts at Bernstein gave 2 key takeaways on why they upgraded Dean Foods:
1. Top-line growth:
Bernstein believes that with birth rates in the United States rising and competition from producers of plant-based milk decreasing, Dean Foods has the opportunity to drive top-line growth and achieve significant market share in the milk industry.
2. Profitability
Bernstein noted that the company's $80-$100 million of cost cutting that they target annually can fall to the bottom line as the company has made significant progress in decreasing the debt on its balance sheet. Thus, analysts believe that Dean Food's EPS can rise 21 percent in 2016.
Currently, Dean Foods is trading at $20.08, up 5.57 percent.
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