"Given that Mr. Silveira was not a member of the audit committee anymore and that any personal liability in this matter might have been covered by insurance, we do not think there is necessarily a direct link between the two events," Jefferies contended. "Also, given that the suicide took place over a week ago, one would assume that if there were a newsworthy item back then, it would have been disclosed by now. The fact that the investigation still appears to be ongoing is another reason for us to lean to the view that Mr. Silveira's suicide was unrelated to the investigation."
In such a skittish market, however, investors who held on through the swoon in early November may not be willing to wait around for the other shoe to drop. Diamond's fall has been brutally fast with the stock hitting its 52-week high of $96.13 on Sept. 21, shortly after reporting fiscal fourth-quarter earnings that topped Wall Street's expectations by more than 17% and raising its fiscal 2012 outlook.
Jefferies is in the minority on the sell side in its bullishness about Diamond as 9 of the 13 analysts covering the stock now rate it a hold, up from five just a month ago.
In its research note reiterating a buy on the shares on Nov. 15, Jefferies outlined the worst-case DCF scenario previously referred to that it says supports a $39 per share price, explaining it assumes such conditions as the Pringles deal doesn't get done, no gross margin expansion for the company's core snacks business, and annual costs of at least $15 million for the next three fiscal years related to the accounting probe and legal expenses, among other factors.In that same Nov. 15 note, the firm cut its price target to $46 from $94, and noted that Diamond's management looks vulnerable to criticism here, even if a restatement doesn't come to pass. "DMND's unwillingness to provide relevant information from the beginning, e.g., size of momentum payment, amount and reason for the 2010 crop underpayment, 2011 grower guidelines, etc., make it seem like the facts would be damaging for DMND," Jefferies said. "By now, lawyers are determining what can be disclosed - i.e., nothing - but more forthcoming information in the beginning might have prevented the meltdown of the stock. Assuming DMND's accounting turns out to be indisputable, the poor handling of this crisis would raise the biggest concerns about management."