An analyst for BMO Capital Markets on Monday upgraded his rating on Dean Foods Co., saying some of the milk processing company's challenges shall soon subside.
THE OPINION: Analyst Amit Sharma raised his rating to "Outperform" from "Market Perform" and boosted his target price for the company's shares to $23 from $22.
Sharma said in a research note that some of the dairy company's currently adverse operating conditions will likely peak soon, and this, combined with a changing investor base, should lead to a modest recovery in the value of the company's stock.
The analyst expects the company's raw milk costs will peak in November and fall subsequently based on lower feed costs and favorable weather, among other factors. He expects Dean's milk volumes should bottom out in the current quarter and improve after that based, in part, on new distribution agreements. The analyst also said that the company's cost saving efforts should help improve its profitability.
Additionally, the analyst said that after spinning off its non-dairy assets, the company is attracting a new type of investor.
THE STOCK: Dean shares added 33 cents, a 1.8 percent, to $18.61 by midafternoon. The Dallas-based company's stock peaked for the year in August near $23 and had been falling until earlier this month when shares began a modest recovery.