KeyBanc Says Diamond Foods (DMDN) Break-Up Value is $44/Sh, But Will Trade Well Below
DMND Hot Sheet
Rating Summary:1 Buy, 11 Hold, 0 Sell
Rating Trend:
Down
Today's Overall Ratings:
Up: 20 | Down: 11 | New: 38
KeyBanc's commented on Diamond Foods (NASDAQ: DMND) following the restatement due to improper payments to walnut growers and the CEO/CFO replacement news.
"Our view on the outcome of the investigation, which was based on indepth and thorough research, proved to be incorrect," Analyst Akshay Jagdale commented. "In terms of Pringles, we now expect P & G to walk away from the deal. We estimate DMND's underlying earnings power in FY11 in the worst case scenario to be $1.80 and believe fair value for the stock in a break-up scenario is $44/share ($33 excluding DMND's nut business)"
The restatements will most likely lead to DMND tripping its debt covenant, the firm noted. This would force the Company to renegotiate at most likely a higher interest rate.
"We believe the stock will trade well below what we consider is fair value until the financial statements are restated, the Company finds a permanent replacement for the interim CEO and CFO positions, and the debt covenants are renegotiated."
The firm is maintaining its Hold rating.
For an analyst ratings summary and ratings history on Diamond Foods click here. For more ratings news on Diamond Foods click here.
Shares of Diamond Foods closed at $36.66 yesterday, with a 52 week range of $26.11-$96.13.
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"Our view on the outcome of the investigation, which was based on indepth and thorough research, proved to be incorrect," Analyst Akshay Jagdale commented. "In terms of Pringles, we now expect P & G to walk away from the deal. We estimate DMND's underlying earnings power in FY11 in the worst case scenario to be $1.80 and believe fair value for the stock in a break-up scenario is $44/share ($33 excluding DMND's nut business)"
The restatements will most likely lead to DMND tripping its debt covenant, the firm noted. This would force the Company to renegotiate at most likely a higher interest rate.
"We believe the stock will trade well below what we consider is fair value until the financial statements are restated, the Company finds a permanent replacement for the interim CEO and CFO positions, and the debt covenants are renegotiated."
The firm is maintaining its Hold rating.
For an analyst ratings summary and ratings history on Diamond Foods click here. For more ratings news on Diamond Foods click here.
Shares of Diamond Foods closed at $36.66 yesterday, with a 52 week range of $26.11-$96.13.
Discover Wall Street's best ratings calls with the pros - Ratings Insider Elite. Free Trial!
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$44 is WAY overvalued!
Mike on Feb 9, 2012 11:17 AMMark as Spam
That is the same analyst who stated the audit would be concluded quickly and they would find that Diamond did nothing wrong.
In addition to that, he places ZERO cost on the whole fiasco in his analysis. Diamond is going to lose a tremendous amount of their goodwill, which is 1/3 of their assets on their balance sheet. Their hard assets are now less than their debt. They have broken their covenants with the banks so they will have to restructure their debt, which is hard given their asset valuation. They can't exactly raise a lot of money by issuing stock either.
Finally, there is going to be the penalties to pay to Pringles for the fallout on this deal, the multitude of shareholder class action lawsuits, the tarnishing of their brand image which will certainly not help their sales and they are still having massive problems in their walnut enterprise.
A breakup scenario pricing assumes that people will buy the pieces. Anybody want to buy Diamond's walnut business? Nobody in the walnut industry wants to buy it since they are getting Diamond's growers and customers for free right now and their plant is old and obsolete.