WhiteWave Foods (WWAV) Takeout Still Possible, Says Bernstein; Stock Upgraded to Outperform

(Updated - September 11, 2015 11:22 AM EDT)

Bernstein analyst Alexia Howard thinks the recent pullback in WhiteWave Foods Company (NYSE: WWAV) creates an attractive entry point. She also thinks the company could still be a take-out target, with General Mills (NYSE: GIS) and Coca Cola (NYSE: KO) seen as potential suitors. This morning Bernstein upgraded the stock from Market Perform to Outperform with a price target of $56.

"Since WhiteWave reported 2Q:15 results on August 7, the stock has come under pressure as investors de-risked their portfolios or became disillusioned with the possibility of a takeout following the 2-year anniversary of the completion of the spin from Dean Foods. However, we believe the recent pull back provides an attractive entry point for a high quality name that continues to deliver mid-to-high teens EPS growth," noted the analyst.

Commenting on a potential take, Howard said while a suitor has not yet come forth, it still seems possible.

"Take-out fever has escalated over the past 6-9 months as we have approached the two-year anniversary of the finalization of the separation from Dean Foods – P/FE multiples expanded from 29x to 44x between January 2015 and July 2015. So far, no one has stepped forward and we suspect that possible acquirers have been kept at bay by the elevated valuation based on exemplary performance. However, it could be that one of the larger multinational soft beverage or European Food companies takes a look, especially if cost and revenue synergies in Europe and China become more attractive and/or valuation takes a further hit. Or one of the more challenged U.S. Food companies could choose to step-in, despite the rather daunting prospects for EPS dilution that a ~30% control premium over the current stock price would imply."

"WhiteWave would add ~17% to General Mills' sales and strengthen its global dairy business by combining Yoplait yogurts with Horizon Organic milk,” said Howard. “And General Mills has also had some experience with the strength of the Silk plant-based beverage brand since it used to participate in a JV with the 8th Continent soymilk brand. At a 30% control premium to its current price, a purchase of WhiteWave would dilute General Mills' EPS by ~10% before cost synergies. However, if we factor 8.5% of WhiteWave's sales ($306 million) as cost synergies achieved over a 2-3 year period, the deal becomes roughly neutral to estimates. It may also be that Campbell Soup or Kellogg could be interested, given their own top line challenges.”

On a potential Coca Cola deal, Howard said a purchase of WhiteWave is well within its reach and would give it exposure to brands with health & wellness credentials like Silk and Horizon Organic.

“At a 30% control premium to its current price, we calculate that WhiteWave would be ~1.4% dilutive to KO's EPS, and ~1.2% accretive post cost synergies at 8.5% of sales. However, it could be more likely that KO takes a stake in WhiteWave like it did in MNST and GMCR instead of buying the whole company. Under an arrangement of this nature, WWAV could expand more quickly internationally using the global Coke system (like MNST is doing). Using its vast non-refrigerated system, KO could also expand WWAV's fairly underdeveloped single serve products (especially outside the U.S.) since they don't require refrigeration. In turn, KO would limit its exposure to the Earthbound Farms business which is more volatile and non-core for KO. We consider that the market could view this in a positive light for WWAV as did for MNST and GMCR2."

For an analyst ratings summary and ratings history on The WhiteWave Foods Company click here. For more ratings news on The WhiteWave Foods Company click here.

Shares of The WhiteWave Foods Company closed at $45.55 yesterday.

You May Also Be Interested In

• Keefe, Bruyette & Woods Upgrades Trustmark (TRMK) to Outperform
• Paramount Global (PARA) and Skydance are closer to a merger - CNBC
• TechnipFMC (FTI) PT Raised to $30 at BTIG