On Friday, Wells Fargo adjusted its financial outlook for Lamb Weston Holdings Inc . (NYSE: NYSE:LW), a leading supplier of frozen potato products. The firm's analyst has revised the price target downward to $70.00 from the previous target of $98.00. Despite the reduction, the analyst continues to recommend an Overweight rating on the stock.
The revision reflects updated estimates for the fiscal years 2025 and 2026. Sales forecasts have been decreased by 2% for both years, now expected to reach $6.64 billion and $7.00 billion respectively. Adjusted EBITDA predictions also faced a cut, with a 15% reduction for fiscal year 2025 to $1.42 billion and a 13% decrease for fiscal year 2026 to $1.56 billion.
Adjusted earnings per share (EPS) estimates saw a significant downward adjustment as well, with a 25% decrease to $4.60 for fiscal year 2025 and a 22% decrease to $5.12 for fiscal year 2026.
The new price target is based on a 14 times price-to-earnings (P/E) ratio and a 9 times enterprise value to EBITDA (EV/EBITDA) multiple. This is a change from the previous multiples of 15.5 and 10.5 times, respectively. According to the analyst, Lamb Weston shares are currently trading at approximately 12 times the fiscal year 2025 EPS guidance, a valuation that aligns with the lower end of food industry valuations and represents a trough level.
The analyst noted that while the current share price seems to have factored in the revised estimates, Lamb Weston must overcome a "credibility/visibility hurdle" before the market can justify an expansion of the stock's multiple from its present level.
In other recent news, Lamb Weston Holdings, Inc. has experienced significant developments. The company's fourth-quarter fiscal year 2024 sales and earnings did not meet expectations, leading to a less favorable outlook for fiscal year 2025.
TD Cowen downgraded Lamb Weston's stock from Buy to Hold due to concerns over market share and pricing. Similarly, Stifel downgraded the stock from Buy to Hold, citing a weaker-than-expected profit forecast and potential for increased industry competition.
Despite these developments, the company's earnings per share (EPS) forecasts remain robust, with projections of 5.48 for FY1 and 6.54 for FY2. TD Cowen and Barclays Capital Inc. have maintained their positive outlook on Lamb Weston, with TD Cowen keeping its Buy rating and $105 price target, and Barclays consistently giving an "Overweight" rating.
InvestingPro Insights
As Lamb Weston Holdings Inc. (NYSE: LW) faces a revised financial outlook, insights from InvestingPro provide a deeper understanding of the company's current market position. Despite the challenges outlined by Wells Fargo's analyst, Lamb Weston's management has shown confidence through aggressive share buybacks, and the company has a consistent track record of raising its dividend for 7 consecutive years, indicating a commitment to returning value to shareholders.
InvestingPro Data highlights a market capitalization of $7.62 billion and a P/E ratio standing at 11.33, which suggests the stock is trading at a low earnings multiple compared to its historical averages. Additionally, Lamb Weston has demonstrated strong revenue growth over the last twelve months as of Q1 2023, with an increase of 20.88%, showcasing the company's ability to expand its sales in a competitive market.
For investors seeking further analysis and additional InvestingPro Tips, including whether the stock's oversold position on the RSI could indicate a potential rebound or if the recent price drop presents a buying opportunity, they can explore more at https://www.investing.com/pro/LW. There are over 10 additional InvestingPro Tips available, which can be accessed with a subscription. Users can use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, providing valuable insights for informed investment decisions.
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