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BB&T Capital Markets Upgrades Post Holdings to a ‘Buy’

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Price movement

Post Holdings (POST) has a market cap of $5.1 billion. Its stock rose by 3.8% to close at $79.54 per share on June 23, 2016. The stock’s weekly, monthly, and YTD (year-to-date) price movements were 7.0%, 6.5%, and 28.9%, respectively, on the same day. POST is trading 5.0% above its 20-day moving average, 7.7% above its 50-day moving average, and 19.2% above its 200-day moving average.

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Related ETF and peers

The iShares Morningstar Small-Cap ETF (JKJ) invests 0.89% of its holdings in Post Holdings. The ETF tracks a market cap–weighted index of US small-cap core stocks. The index selects stocks from the 90%–97% market cap range. The YTD price movement of JKJ was 7.2% on June 23.

The market caps of Post Holdings’ competitors are as follows:

  • Kellogg (K): $27.3 billion
  • TreeHouse Foods (THS): $5.6 billion
  • B&G Foods (BGS): $3.0 billion

Post Holdings’ rating

BB&T Capital Markets has upgraded Post Holdings’ rating to “buy” from “hold” and set the stock’s target price at $87.0 per share.

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Performance in fiscal 2Q16

Post Holdings reported fiscal 2Q16 net sales of $1.3 billion—an increase of 20.7% compared to net sales of $1.1 billion in fiscal 2Q15. The company’s cost of goods sold as a percentage of net sales fell by 8.1% in fiscal 2Q16 compared to the same period last year. In fiscal 2Q16, it reported an operating profit of $1.6 billion compared to $49.7 million in fiscal 2Q15.

In fiscal 2Q16, the company’s net income and EPS (earnings per share) fell to $1.5 million and $0.02, respectively, from $26.3 million and $0.45, respectively, in fiscal 2Q15. It reported adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $247.8 million—an increase of 66.1% compared to fiscal 2Q15.

Post Holdings’ cash and cash equivalents and inventories rose by 3.2% and 5.6%, respectively, in fiscal 2Q16 compared to fiscal 4Q15. Its current ratio rose to 3.3x, and its DE (debt-to-equity) ratio fell to 2.06x, compared to current and DE ratios of 2.9x and 2.1x, respectively, in fiscal 4Q15.

Projections

Post Holdings has made the following projections:

  • adjusted EBITDA of $8.9 billion–$9.1 billion for fiscal 2016
  • adjusted EBITDA of $410 million–$430 million for 2H16
  • capital expenditures of $145 million–$155 million for fiscal 2016, including ~$20 million related to growth activities and ~$20 million related to integration activities
  • maintenance capital expenditures of $105 million—$115 million for fiscal 2016

In the next part of this series, we’ll take a look at McCormick & Company.

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