Del Monte Foods Companyâs (DLM) 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 and overall competitiveness; however, escalating commodity costs and lower sales volume are constraining earnings progress. Though EPS have been and are expected to remain in the $0.60 to $0.75 range, the stock appears to be attractively valued and the rating is a Buy.
The Transformation Plan will require cumulative pre-tax charges of $110 million, of which nearly $62.8 million were incurred in fiscal 2007. The company is on track to achieve pre-tax savings of $40 million in fiscal 2008 and $50 million in fiscal 2009. Management plans to accelerate growth through a U.S. focused, brand-driven strategic growth plan centered on continuous product and packaging innovation along with a cost reduction program.
Del Monte is currently selling at 13.5 times trailing 12-month EPS. Due to the companyâs earnings (diluted EPS before NRI) being range bound in the $0.67 to $0.91 area for the last five years, the relatively low interest coverage on its debt (2 versus an industry average of 9.3), 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 $11.25 is based on a 16 P/E on our estimate for current fiscal year EPS.
Read the full analyst report on DLM.
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