On Friday, Stifel, a financial services firm, adjusted its outlook on shares of Lamb Weston (NYSE: LW), reducing the price target from $80.00 to $68.00, while maintaining a Hold rating on the stock. The stock, which has declined over 21% in the past week according to InvestingPro data, is currently trading at $61.81, down significantly from its recent $78.22 close. This decision follows Lamb Weston's report of a quarter that fell short of expectations.
The company's EBITDA dropped by 25% to $282 million, which was $50 million below Stifel's estimate. While InvestingPro data shows the company maintains a GOOD overall financial health score, the underperformance was attributed to sales that did not meet projections and a gross margin of 25.11% that was significantly lower than anticipated, reflecting ongoing challenges such as volume deleverage and operational inefficiencies.
Lamb Weston also revised its future earnings guidance downward, with the updated forecast for FY25 EBITDA being $190 million less than previously projected. The company anticipates a weaker second half in terms of revenue, factoring in a slower recovery in volume and additional pricing pressures. In response to these challenges, Lamb Weston is undertaking a restructuring plan and reducing its capacity footprint.
Additionally, there will be a change in leadership as Michael Smith, the current Chief Operating Officer, is set to take over the roles of CEO and President from Tom Werner in early January. The company is also facing continued pressure from activist investor Jana to gain board representation and explore a potential sale. According to InvestingPro analysis, the stock appears undervalued despite trading at a P/E ratio of 24.39.
Despite the firm's belief that Lamb Weston is a unique asset, the current business pressures are seen to decrease the likelihood of a sale at a significant premium. InvestingPro subscribers have access to 6 additional key insights about Lamb Weston's current market position and future prospects.
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