On Thursday, Citi reaffirmed its Buy rating on shares of Lamb Weston (NYSE:LW) but reduced the price target significantly from $104.00 to $72.00. The adjustment follows Lamb Weston's report of disappointing fourth-quarter fiscal year 2024 sales and earnings, paired with a less-than-favorable outlook for fiscal year 2025. The company's shares experienced a substantial decline of 28% on Wednesday, in contrast to a modest 2% drop in the S&P 500 index.
According to the firm, Lamb Weston's volume trends have underperformed, attributed mainly to issues specific to the company, although industry-wide weakness had been anticipated. Lamb Weston has signaled its intention to offer price concessions to reclaim lost market share, a strategy that could indicate a possible shift in an industry that traditionally steers clear of price wars.
Citi has adjusted its sales and earnings projections for Lamb Weston downward, reflecting the anticipated impact of these strategies on the company's financial performance. Despite the reduced estimates and price target, the firm's outlook remains optimistic. Citi's stance is based on the potential for the food service industry to recover and for Lamb Weston to successfully recapture some of the market share it has lost.
In other recent news, Lamb Weston has been under the analysts' microscope, with Stifel downgrading its stock from Buy to Hold due to a weaker-than-expected profit forecast and potential for increased industry competition. The financial services firm also slashed its price target significantly from $115 to $60. Lamb Weston's recent performance and subdued profit outlook for fiscal year 2025 were key factors in this decision.
EBITDA estimates for FY25 have been revised downwards by approximately 5% due to slowing restaurant traffic and customer losses stemming from the implementation of an Enterprise Resource Planning (ERP) system. However, EPS forecasts remain robust with projections of 5.48 for FY1 and 6.54 for FY2, indicating expectations of solid earnings growth.
Barclays Capital Inc., another analyst firm, has consistently given Lamb Weston an "Overweight" rating, suggesting confidence in its potential to outperform the broader market.
InvestingPro Insights
With Lamb Weston's recent performance and market activity, a closer look at the company's financial health and stock behavior can provide a clearer picture for investors. According to InvestingPro data, Lamb Weston has a market capitalization of $8.11 billion and is currently trading at a price-to-earnings (P/E) ratio of 15.79. Despite recent setbacks, the company's revenue growth over the last twelve months as of Q4 2024 stands at a solid 20.88%, indicating a strong top-line expansion. Moreover, Lamb Weston has managed to maintain a healthy gross profit margin of 27.64% during the same period.
Two InvestingPro Tips highlight critical aspects for potential investors: Lamb Weston has consistently raised its dividend for the past seven years, showcasing a commitment to returning value to shareholders, and the company's stock is currently in oversold territory based on the Relative Strength Index (RSI), potentially signaling a buying opportunity for contrarian investors. Additionally, the company's liquid assets exceed its short-term obligations, providing financial stability.
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