Lamb Weston (LW) Stock Up 28.3% YTD: What's Driving the Rally?
Lamb Weston Holdings, Inc.’s LW performance has been impressive since the beginning of this year, which is evident from the 28.3% increase in its share price. Strength across end markets, effective pricing actions, buyouts and strong capital-allocation strategies supported positive market sentiments for the company. The company remains focused on investing in growth opportunities and solidifying its long-term market position.
Year to date, this Zacks Rank #2 (Buy) stock has outperformed the industry’s 0.4% growth and the S&P 500’s rally of 14.4%.
Image Source: Zacks Investment Research
Let’s delve into the factors that have been aiding this manufacturer of value-added frozen potato products for a while now.
Robust Price/Mix: Lamb Weston has been benefiting from a solid price/mix over the past few quarters. In the third quarter of fiscal 2023, its price/mix increased 31% across core businesses, indicating gains from pricing actions implemented to address input and manufacturing cost inflation. The company’s Global segment witnessed 33% growth in price/mix on gains from domestic and international pricing actions. The price/mix in the Foodservice segment benefited from the carryover benefits of pricing actions undertaken to battle inflationary headwinds. Also, in the Retail segment, price/mix surged 44%.
Expansionary Efforts & Upbeat Fiscal 2023 View: Lamb Weston remains focused on expanding its product offerings and footprints across new markets. For instance, in September 2022, it announced its plan to expand french fry processing capacity in Argentina by opening a new manufacturing unit in Mar del Plata, Buenos Aires. In July 2021, LW unveiled the expansion plan for its french fry processing capacity at the existing American Falls, ID, facility. This apart, it worked on constructing a new french fry processing facility in Ulanqab, Inner Mongolia, China.
The company’s efforts to expand production capacity and offerings have been allowing it to capitalize on the rising demand for snacks and fries. Management raised its fiscal 2023 guidance, which includes the consolidation of the European joint venture in the fiscal fourth quarter. For fiscal 2023, it expects net sales to grow in the range of $5.25-$5.35 billion, higher than $4.8-$4.9 billion projected earlier. Adjusted earnings per share are envisioned in the band of $4.35-$4.50 compared with $3.75-$4.00 expected previously.
Strategic Initiatives: In February 2023, Lamb Weston completed the acquisition of the remaining equity interests in its European joint venture with Meijer Frozen Foods B.V. This buyout will strengthen its ability to serve customers across key markets, globally. Also, in July 2022, it bought an additional 40% stake in Lamb Weston Alimentos Modernos S.A. ("LWAMSA") — which is its joint venture in Argentina — taking its total ownership to 90%. These factors indicate LW’s commitment to achieving growth through the addition of assets.
Shareholder-Friendly Policy: LW remains committed to rewarding shareholders through dividend payouts and share repurchases. For instance, in the fiscal third quarter, it paid out dividends of $35.2 million and repurchased shares worth $12.2 million.
Northbound Estimate Trend: In the past 60 days, the Zacks Consensus Estimate for the company’s fiscal 2023 and 2024 earnings have been revised upward by 0.2% and 0.4%, respectively.
Other Stocks to Consider
Some other top-ranked stocks are Ingredion Incorporated INGR, Nomad Foods Limited NOMD and Vital Farms, Inc. VITL, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Ingredion is a producer and distributor of sweeteners, nutrition ingredients and biomaterial solutions. The Zacks Consensus Estimate for INGR’s current financial-year earnings per share is expected to rise by 22.1% from the corresponding year-ago reported figure.
Nomad Foods manufactures and distributes frozen foods. NOMD has a trailing four-quarter earnings surprise of 8.5%, on average. The Zacks Consensus Estimate for Nomad Foods’ current financial year sales suggests growth of 8%, while earnings are likely to decline 3.4% from the prior-year reported numbers.
Vital Farms operates as a supplier of pasture-raised products in the United States. The Zacks Consensus Estimate for VITL’s current financial-year sales and earnings per share suggests growth of 27.7% and 1,100%, respectively, from the corresponding year-ago reported figures. Vital Farms has a trailing four-quarter earnings surprise of 120%, on average.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Ingredion Incorporated (INGR) : Free Stock Analysis Report
Lamb Weston (LW) : Free Stock Analysis Report
Nomad Foods Limited (NOMD) : Free Stock Analysis Report
Vital Farms, Inc. (VITL) : Free Stock Analysis Report
