Dean Foods stock has fallen 5.2% to $14.39 in Thursday afternoon trading.
Stephens analyst Farha Aslam says she reduced Dean Foods to equal-weight from overweight given the company's fourth quarter earnings miss and 2010 guidance that is below her expectations and the consensus.
"Our thesis was that the shares were attractively valued," Aslam writes in a note to investors. But now, "we believe the opportunity in the stock is less compelling."Aslam says that concerns about escalating dairy commodity prices for the next several months will put downward pressure on Dean Foods shares. Aslam in her note also makes a reference to Dean Foods' decision to buy out a disadvantageous distribution contract inherited as part of a past acquisition. The cost of the exit is estimated to be about $5 million pre-tax. That's about 1 to 2 cents a share. Dean Foods is forecasting adjusted earnings of $1.54 to $1.64 for 2010, compared with the consensus forecast of $1.68. The company's fourth quarter performance was below even its own expectations. Dean Foods said that sharply rising commodities put pressure on both its Fresh Dairy Direct and Morningstar segments. Dean Foods reported adjusted earnings of 31 cents a share versus 46 cents a share the previous year. The consensus estimate was 37 cents a share.