Lamb Weston Analyst: Potato Bearishness Is Half-Baked
Investors were having a side of fries Wednesday, buying shares of potato processor Lamb Weston Holdings Inc (NYSE: LW) after Goldman Sachs upgraded the stock.
Analyst Adam Samuelson upgraded Lamb Weston from Neutral to Buy with a $76 target price.
With demand up, potato producers have increased capacity. But even with the anticipated increase in potato supply over the next few years, Samuelson said Goldman expects demand growth around 2% that should keep utilization rates high. (See his track record here.)
The market is unlikely to see the negative pricing and margin issues that underpin the bear cases for Lamb Weston, the analyst said.
“We see LW as able to generate mid-single digit revenue growth over the next three years, with 20-40bp of base margin expansion."
Positive Signals From McDonald's
McDonald’s Corp (NYSE: MCD) is a huge customer for Lamb Weston, and it’s doing well, outpacing U.S. restaurant industry growth trends, Samuelson said.
Lamb Weston shares have significantly underperformed the S&P and are now favorably priced, he said.
Goldman Sachs joins Bank of America Merrill Lynch, which turned bullish on Lamb Weston last month.
Lamb Weston shares were up 3.99% at $61.32 at the close Wednesday.
Photo courtesy of Lamb Weston.
© 2019 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.