Bearish View on Diamond Foods - Analyst Blog
January 02 2013 - 5:10AM
Zacks
We have downgraded our long-term
recommendation on Diamond Foods, Inc. (DMND) to
‘Underperform' following its dismal first-quarter fiscal 2013
performance. The stock also bears a Zacks #5 (Strong Sell) Rank,
while its prime competitors ConAgra Foods,
Inc. (CAG) and Mondelez
International, Inc. (MDLZ) carry Zacks #2 (Buy) and Zacks
#3 (Hold) Ranks, respectively.
Diamond Foods’ first-quarter fiscal
2013 adjusted earnings of 24 cents per share plummeted 66.2% from
the year-ago quarter’s earnings of 71 cents, primarily due to weak
top-line performance and increased operating expenses as a
percentage of sales. Total sales for the reported quarter were
$258.5 million, down 10.1% from $287.4 million recorded in the
year-ago quarter, mainly due to sluggish performances delivered by
the company’s both segments – Retail and Non-Retail.
Moreover, the company remained
silent about any future sales and earnings outlook. However, it
expects advertisement expenses to surge in the remaining period of
fiscal 2013. The company’s performance may also get impacted due to
difficulty on its part to secure walnut supplies and repair its
ties with the growers. The company was charged for irregular
payments to nut growers and accounting the same in other
periods.
Further, the company has to look
towards generating higher cash flow; otherwise, a highly leveraged
balance sheet may stop it from taking strategic initiatives.
Further, continued macroeconomic headwinds, intense competition,
product recalls and fluctuations in raw material prices may
undermine its future growth prospects and sustainability.
In addition, based on forward
earnings estimates, Diamond Foods is trading at 60.54x,
substantially at premium from the peer group average of 15.80x. The
company has a TTM pre-tax margin of negative 9.5%, significantly
lower the peer group average of positive 6.6%. Further, it
generates a TTM net margin of negative 11.3%, well below the peer
group average of positive 4.1%. The company’s TTM Return on Equity
(ROE) of 0.2%, TTM Return on Investment (ROI) of 0.1% and TTM
Return on Asset (ROA) of 0.0% are all worse than the peer group
averages. Looking at the valuations, we believe that it would not
be prudent to invest at the current juncture.
CONAGRA FOODS (CAG): Free Stock Analysis Report
DIAMOND FOODS (DMND): Free Stock Analysis Report
MONDELEZ INTL (MDLZ): Free Stock Analysis Report
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