Lamb Weston (LW) Hits Fresh High: Is There Still Room to Run?
Have you been paying attention to shares of Lamb Weston (LW)? Shares have been on the move with the stock up 12.5% over the past month. The stock hit a new 52-week high of $87.39 in the previous session. Lamb Weston has gained 36% since the start of the year compared to the -7.2% move for the Zacks Consumer Staples sector and the 2.3% return for the Zacks Food - Miscellaneous industry.
What's Driving the Outperformance?
The stock has an impressive record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on October 5, 2022, Lamb Weston reported EPS of $0.75 versus consensus estimate of $0.52 while it missed the consensus revenue estimate by 1.38%.
For the current fiscal year, Lamb Weston is expected to post earnings of $3.03 per share on $4.7 billion in revenues. This represents a 45.67% change in EPS on a 14.64% change in revenues. For the next fiscal year, the company is expected to earn $3.89 per share on $5.39 billion in revenues. This represents a year-over-year change of 28.47% and 14.63%, respectively.
Valuation Metrics
Lamb Weston may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company is due for a pullback from this level.
On this front, we can look at the Zacks Style Scores, as they provide investors with an additional way to sort through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. Investors should consider the style scores a valuable tool that can help you to pick the most appropriate Zacks Rank stocks based on their individual investment style.
Lamb Weston has a Value Score of B. The stock's Growth and Momentum Scores are A and D, respectively, giving the company a VGM Score of A.
In terms of its value breakdown, the stock currently trades at 28.4X current fiscal year EPS estimates, which is a premium to the peer industry average of 19.9X. On a trailing cash flow basis, the stock currently trades at 25.1X versus its peer group's average of 12.3X. Additionally, the stock has a PEG ratio of 1.06. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.
Zacks Rank
We also need to consider the stock's Zacks Rank, as this supersedes any trend on the style score front. Fortunately, Lamb Weston currently has a Zacks Rank of #1 (Strong Buy) thanks to favorable earnings estimate revisions from covering analysts.
Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if Lamb Weston fits the bill. Thus, it seems as though Lamb Weston shares could still be poised for more gains ahead.
How Does LW Stack Up to the Competition?
Shares of LW have been soaring, and the company still appears to be a decent choice, but what about the rest of the industry? One industry peer that looks good is Lancaster Colony Corporation (LANC). LANC has a Zacks Rank of # 2 (Buy) and a Value Score of B, a Growth Score of A, and a Momentum Score of B.
Earnings were strong last quarter. Lancaster Colony Corporation beat our consensus estimate by 170%, and for the current fiscal year, LANC is expected to post earnings of $5.85 per share on revenue of $1.84 billion.
Shares of Lancaster Colony Corporation have gained 16.4% over the past month, and currently trade at a forward P/E of 30.82X and a P/CF of 30.56X.
The Food - Miscellaneous industry may rank in the bottom 56% of all the industries we have in our universe, but there still looks like there are some nice tailwinds for LW and LANC, even beyond their own solid fundamental situation.
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