Since announcing the acquisition of Snack Factory last month, shares of Snyder's-Lance, Inc. (LNCE) have climbed nearly 13%. This Zacks #1 Rank (Strong Buy) snack food company has an attractive distribution yield of 2.5% and a long term earnings growth projection of 19.0%, which makes it a good pick for investors looking for both growth and income.
Welcome Aboard, Snack Factory
On October, 11, Snyder's-Lance completed its acquisition of Pretzel Crisps maker Snack Factory for $340 million. This transaction will introduce the company to the fast growing deli-bakery section of grocery stores, where Pretzel Crisps has captured a significant share. The deal is expected to be accretive to the company's earnings by 2 cents this year and 10 cents next year, and will boost its 2013 revenue by $160 million.
On August 7, Snyder's-Lance posted second-quarter adjusted earnings of 22 cents per share, which eclipsed the Zacks Consensus Estimate by a penny and the prior-year quarter by 6 cents.
Net sales of $399 million dropped 3.2% year over year. However, excluding the impact of the company's conversion of direct-store delivery network to an IBO (independent business owner) structure, net revenue advanced 1.3%. This upside was primarily driven by increased demand for branded products, which grew 4.3%.
The company expects profit margins to expand in the second half of 2012 and earnings to grow 30% to 45% year over year.
The company is scheduled to report its third quarter on November 7. The Zacks Consensus Estimate is at 26 cents per share, up 64.4% year over year.
Earnings Momentum Climbing
The Zacks Consensus Estimate for fiscal 2012 is up 1.1% to 95 cents per share over the past 60 days, implying year-over-year growth of 35.5%. For fiscal 2013, the Zacks Consensus Estimate is $1.31 per share, increasing 5.6% and reflecting a year-over-year growth of 38.0%.
Snyder's-Lance has been consistently paying dividends of 16 cents per quarter to its shareholders since 2000. Currently, the stock offers a healthy dividend yield of 2.52%. In contrast, the dividend yield of the industry is a meager 1.55%.
Valuation Looks Reasonable
Considering the company's growth prospects, its valuation looks reasonable on a P/E basis. Snyder's-Lance is currently trading at a P/E of 33.9X, up 62.7% from the peer group average of 20.8X. In addition to P/E, the stock is also trading at a forward P/S of 1.07, compared with the peer group's P/S of 1.00.
The estimated average earnings growth for five years is 19.0%, which is 82.7% above the peer group average of 10.4%.
Chart Reflects Strength
Share prices for the snack maker jumped almost 12.5% on the acquisition news of Snack Factory on September 6, 2012, and since then the stock is trading above its 200-day and 50-day moving averages. The stock has also outperformed the S&P 500 index since September 6. The 3-month return for the stock is approximately 10.9%, compared with the S&P 500's return of 5.2%.
Snyder's-Lance manufactures, markets and distributes a variety of branded and private label snack foods and bakery products. The company currently owns three core brands; Snyder's of Hanover Pretzels, Lance Sandwich Crackers and Cape Cod Potato Chips. Pretzel Crisps will be the fourth core brand of Snyder's-Lance. The company, which competes with ConAgra Foods, Inc (CAG), has a market cap of $1.74 billion.
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