Still have access to that UBS #$%$, target now $ 18.
Adjusting Our Model; Lowering Price Target
Following 4Q earnings, we are lowering our ‘13e EPS to $1.08 (-23% YOY) from
$1.28—largely reflecting the sale of Morningstar. In addition our new estimates
reflect: 1) lower WhiteWave profitability (+12% YOY), 2) a low-single-digit decline
in Fresh Dairy Direct volume (partly offset by stepped up cost reductions), and 3)
lower corporate costs. Our new sum-of-the-parts based $18 price target (from $19)
reflects a lower profit growth outlook and enterprise value for WhiteWave.
Solid 4Q, But with Reminders of a Competitive Dairy Environment
Despite a rise in raw fluid milk costs in 4Q (Class 1 +23% Q/Q) and ongoing
volume declines (-0.8% YOY), FDD adj operating profit beat our expectations
(+2% vs. UBSe -5%). However, the impending loss of private label volume in
2013 is a stark reminder of Dean’s limited pricing power and the overcapacity
within the fluid milk industry.
4Q Beat on Better Fresh Dairy Direct Performance
4Q adj EPS including Morningstar results was $0.40 (+45% YOY; UBSe/cons
$0.30). The beat to our model was largely driven by better than expected top-line
growth (+3.7% vs. UBSe 1.5%) given higher price pass through in the Fresh Dairy
Direct business. Gross margin and operating expenses were in line with UBSe,
while below the line items were a cumulative $0.03 benefit (largely tax related).
Valuation: Neutral Rated; Lowering Target to $18 from $19
Our new sum-of-the-parts based target assumes a 5x 2014e EV/EBITDA multiple
for the Fresh Dairy Direct business, and 11x for Dean’s share of WhiteWave.
$ 18 is their base target. Optimistic EVP high-end target is $ 20.94.
IMHDO DF will beat the coming quarterly EPS Estimates again. They are consistently giving EPS estimates and then beat them. I think that due to all the moving parts (DF, WWAV, etc.) this time they decided to be very conservative and thus also gave a wide range of trheir EPS Estimate.