Reiterating his bullish case for Del Monte Foods Company (DLM), Zacks senior packaged food sector analyst Steven Ralston, CFA explains why he has initiated a Buy recommendation for the stocks of the canned food firm:
'Del Monte's management states that it is focused on improving shareholder value through a brand-driven strategic plan. Management believes that the Transformation Plan will enhance execution of its business strategies and overall competitiveness of the organization. However, escalating commodity costs and lower sales volume are constraining earnings progress.
'Though EPS have been and are expected to remain in the $0.67 to $0.89 range, the stock appears to be attractively valued and a buy recommendation has been initiated. Del Monte is currently selling at 15.5 times trailing 12-month EPS.
'Due to the company's earnings (diluted EPS before NRI) being range bound in the $0.67 to $0.89 area for the last five years, the relatively low-interest coverage on its debt (2.1 versus an industry average of 8.2), and the seasonality of the earnings, the stock has traded in a narrow and low P/E range of 9 to 18 times trailing 12-month earnings. The target price of $12.75 is based on a 17 P/E on our estimate for current fiscal year EPS.'
Read the full analyst report on DLM.
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