Valued at a market cap of $9.1 billion, Lamb Weston Holdings, Inc. (LW) engages in the production, distribution, and marketing of frozen potato products. The Eagle, Idaho-based company offers frozen potatoes, commercial ingredients, and appetizers under the Lamb Weston brand, as well as under various other customer labels.
Companies worth $10 billion or less are generally described as “mid-cap” stocks, and LW fits right into that category. The packaged foods company has been a leader in the frozen potato industry for over 70 years and is one of the world's largest producers of frozen french fries.
Despite its strengths, the premier potato & fries company has crashed 42.9% from its 52-week high of $111.88, achieved on Jan. 4. It has fallen 1.5% over the past three months, still outpacing the broader Consumer Staples Select Sector SPDR Fund’s (XLP) 5% decline over the same time frame.
However, in the longer term, LW has declined 39% over the past 52 weeks, significantly lagging behind XLP’s 10.8% returns. Moreover, on a six-month basis, shares of LW are down 24.7%, massively underperforming XLP’s 1.6% gain over the same time frame.
To confirm its bearish trend, LW has been trading below its 200-day and 50-day moving average since mid-December.
On Dec. 19, shares of LW crashed 20.1% following its disappointing Q2 earnings release. The company’s adjusted earnings fell by a massive 54% from the year-ago quarter to $0.66 per share and missed the consensus estimates by a whopping 35.3%. Moreover, its revenue declined 8% year-over-year to $1.6 billion and lagged behind the Wall Street estimates of $1.67 billion.
Higher-than-expected manufacturing costs and weaker volumes primarily led to LW’s discouraging performance. The company’s full-year revenue and EBITDA guidance also fell short of Wall Street's estimates. This might have further dampened investor confidence.
LW has underperformed its rival, Conagra Brands, Inc. (CAG), which declined 3.9% over the past 52 weeks and 4.5% over six months.
Looking at Lamb Weston's recent outperformance relative to its sector peers, analysts remain moderately optimistic about its prospects. The stock has a consensus rating of “Moderate Buy” from the 11 analysts covering it, and the mean price target of $74.27 suggests a 16.2% premium to its current levels.
