Flowers Foods (FLO) May Have Undisclosed Investigation by DOL, Says Pivotal Research

August 8, 2016 9:01 AM EDT
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Price: $15.21 -3.61%

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Pivotal Research maintained a Sell rating on Flowers Foods (NYSE: FLO) with a price target of $8. Analyst Timothy S. Ramey believes the company is under investigation by the Department of Labor.

Ramey explained, "We have made several FOIA requests of the Department of Labor, Wage and Hour Division regarding any investigations of Flowers Foods. As recently as July 12th on a request for information dated June 10th 2016, the file was unresponsive. Today we received a response to a FOIA request, which cites the 7(A) exemption – the DOL was unresponsive because such information may 'interfere with enforcement proceedings.' Bingo. We have made similar FOIA requests of the SEC and as recently as August 1st there was no SEC investigation of Flowers."

"We have been expecting a DOL investigation for several reasons. We have made an effort to reach out to the Department of Labor, sending along our research and encouraging the DOL to look at the misclassification issue at Flowers. The DOL has been active in this area, writing a landmark opinion on misclassification last July. We’ve written about the recent Grammatico case, brought by the DOL. We have followed up with Administrator Weil and his office, bringing the Flowers matter to their attention. A DOL official contacted us on June 3rd to ask for help in contacting drivers in Georgia. The Flowers misclassification issue, which our FOIA indicates the DOL is likely actively pursuing, would be a huge case," continued the analyst.

Ramey added, "Flowers Foods is under siege from multiple class-actions in various jurisdictions. The Rehberg case – the lead case – looks set to go to trial the week of October 17th. Another case in California – Martinez, which had five plaintiffs, recently settled out of court; we do not know the nature of the settlement. Multiple suits are well-documented but take time and resources to pursue and the loss of just one may not result in a company-wide action to reclassify its workers. The misclassification suits are an assault on the Independent Operator model but even a loss of one suit might not compel Flowers to change. An action by the DOL could be very sweeping in its consequences. We believe we have the information necessary to assume that such action is in the pipeline."

For an analyst ratings summary and ratings history on Flowers Foods click here. For more ratings news on Flowers Foods click here.

Shares of Flowers Foods closed at $17.89 yesterday.

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