Lamb Weston Holdings: A Buy Rating Despite Short-Term Challenges

Jefferies analyst Alexander Slagle maintained a Buy rating on Lamb Weston Holdings (LW – Research Report) today and set a price target of $101.00.

Alexander Slagle has given his Buy rating due to a combination of factors which reflect his optimism about Lamb Weston Holdings’ future performance and valuation. Slagle acknowledges the temporary challenges the company is facing, such as enterprise resource planning (ERP)-related customer recovery issues and concerns about industry traffic. However, he believes these issues are not long-term and that industry traffic could improve over the next few quarters because of increased promotional activity that Lamb Weston itself does not fund. Slagle also notes that the U.S. crop has been planted on schedule and that the company’s new Idaho facility is set to open soon, which may contribute positively to the company’s operations.

Furthermore, Slagle considers the current valuation of Lamb Weston’s stock to be overly discounted, especially when compared to its historical multiples since the spin-off from Conagra. Despite near-term investor tentativeness due to soft restaurant traffic, Slagle sees a potential for volume recovery and margin upside. He also mentions that long-term investors are becoming more bullish given the current stock valuation relative to the discounted firm value. Lamb Weston’s willingness to work with customers as long as the economics are acceptable, despite a lack of cost deflation, also contributes to Slagle’s positive outlook for the stock.

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Lamb Weston Holdings (LW) Company Description:

Lamb Weston Holdings, Inc. engages in the production, distribution, and marketing of value-added frozen potato products. It operates through the following business segments: Global, Foodservice, Retail, and Other. The Global segment includes branded and private label frozen potato products sold in North America and international markets. The Foodservice segment comprises branded and private label frozen potato products sold throughout the United States and Canada. The Retail segment consists consumer facing retail branded and private label frozen potato products sold primarily to grocery, mass merchants, club, and specialty retailers. The Other segment compose of vegetable and dairy businesses. The company was founded on July 5, 2016 and is headquartered in Eagle, ID.