On Monday, Morgan Stanley resumed coverage on Performance Food Group (NYSE:PFGC) stock, issuing an Equalweight rating and setting a price target of $92.00. The firm highlighted a generally positive outlook on the food distribution sector, citing reasons such as structural consolidation, reasonable valuations, and potential earnings growth with increased capital return to shareholders.
Performance Food Group, according to the analyst, stands out with a strong management team and a solid track record of execution. The company is also recognized for its opportunities in ongoing consolidation. The industry consensus mirrors this favorable perspective.
Since the last earnings and deal announcement on August 14, PFGC's shares have climbed by approximately 23%, outperforming the 13% gain of US Foods Holding Corp . (NYSE:NYSE:USFD), which is rated Overweight, and contrasting with the 2% decline of Sysco Corporation (NYSE:NYSE:SYY), which holds an Equalweight rating.
The analyst pointed out that Performance Food Group's stock had been undervalued but has since reached a more appropriate valuation, trading at around 10.5 times the firm's projected calendar year 2025 EBITDA. This valuation is in line with US Foods Holding Corp. and not far behind Sysco Corporation, which typically commands a premium in valuation. Additionally, improving sentiment regarding restaurant demand has contributed positively to the company's stock performance.
In other recent news, Performance Food Group has seen significant financial developments. The company recently completed its acquisition of Cheney Bros., a move that Wells Fargo predicts will bring about $50 million in run-rate synergies by the third year. The acquisition is expected to be accretive to the adjusted earnings per share by the end of the first fiscal year.
Performance Food Group also issued $1.0 billion of 6.125% Senior Notes due 2032 and entered into an Amended Credit Agreement, boosting its revolving commitments to $5.0 billion. The proceeds from these activities are intended to finance the acquisition of Cheney Bros.
Wells Fargo raised the company's price target from $83.00 to $88.00, maintaining an Overweight rating, while Piper Sandler and Truist Securities increased their price targets for Performance Food Group to $87.00 and $88 respectively.
Looking ahead, Performance Food Group projects net sales to be between $60 billion and $61 billion in the fiscal year 2025, with adjusted EBITDA ranging from $1.6 billion to $1.7 billion. These recent developments underscore Performance Food Group's commitment to its growth strategy and financial performance.
InvestingPro Insights
Performance Food Group's recent stock performance aligns with the positive outlook highlighted by Morgan Stanley. InvestingPro data shows that PFGC has delivered a strong 50.04% return over the past year, with a notable 24% gain in the last three months. This performance supports the analyst's observation of the stock's recent climb.
The company's current P/E ratio of 29.25 and its trading near its 52-week high (98.63% of the high) reflect the market's optimism. However, an InvestingPro Tip cautions that PFGC is trading at a high P/E ratio relative to its near-term earnings growth, suggesting investors should carefully consider the valuation.
Another InvestingPro Tip notes that PFGC suffers from weak gross profit margins, which is evident in the reported gross profit margin of 12.03% for the last twelve months. This aspect may be worth monitoring as it could impact the company's profitability in the competitive food distribution sector.
For investors seeking a more comprehensive analysis, InvestingPro offers 13 additional tips for Performance Food Group, providing a deeper insight into the company's financial health and market position.
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