Post Holdings (POST) shares progressed by 6.04% reaching $75.15 on heavy trading volume Friday afternoon, after the St. Louis-based holding company reported its 2016 fiscal second quarter results.
Post Holdings was initiated with an “overweight” rating and a $90 price target at KeyBanc Capital Markets. The food company closed with a 1.41% increase to $76.76 on Thursday. Due to an increase in cash flow and beneficial business practices brought on by the MOM Brands acquisition, ample margins in the active nutrition segment and continuous earning potential from its Michael Foods unit, experts foresee up to a 20% upside to the stock.
Through its Michael Foods Group, Post supplies value-added egg products, refrigerated potato products, cheese and other dairy case products and dry pasta products to the private label retails food service and ingredient channels and markets retail brands.
After yesterday’s market close, the consumer packaged goods and cereal company reported adjusted earnings of 87 cents per diluted share, exceeding analysts’ estimates of 41 cents per share.
Results were lifted by the acquisition of MOM Brands in fiscal 2015 and Willamette Egg Farms in fiscal 2016, the company said.For fiscal 2016, Post forecasts adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) between $893 million and $913 million, up from its previous outlook of $810 million to $840 million.
The official POST Holding investor news website explains their look-forward statements:
“Prior to the acquisition of MOM Brands, Post management had estimated fiscal 2015 Adjusted EBITDA to be between $540.0 million and $580.0 million. Post management has revised this guidance to include better than expected year-to-date performance, the completion of the acquisition of MOM Brands and the impact of avian influenza. Including MOM Brands at approximately $50.0 million and the expected impact of avian influenza at approximately $20.0 million for the remainder of fiscal 2015, Post management now estimates fiscal 2015 Adjusted EBITDA to be between $585.0 million and $610.0 million.”
Following their releases, the company goes on to explain that their look forward statements are subject to conditions out of their control. This falls in line with their tradition to maintain a conservative outlook in order to keep a realistic approach to synergy targets.
“POST has established a clear pattern of under-promising and over-delivering on prior synergy targets; we believe MOM Brands is ripe with synergy upside and see $100M+ given the identical nature of the MOM and POST legacy cereal businesses, driving solid mid-20%+ segment margins,” KeyBanc analysts reported in a release just before today’s market open.”We believe these dynamics combined with several segment-specific catalysts should conservatively clear a path to just under $1B in organic EBITDA over the next three years (ex-M&A),” analysts added.
Post has made 11 deals in the past three years from which they are starting to reap benefits thanks to lowering of administration and general operation costs. Revenue jumped by 20.7% to $1.27 billion year-over-year and was above Wall Street’s expectations of $1.23 billion.