It's Splitsville for Food Companies in 2012

NEW YORK (TheStreet) -- For the consumer goods sector, 2012 will be about how some companies handle breaking apart and how they perform after they split.

Some of the breakups this year include Kraft Foods (KFT), Sara Lee (SLE) and Ralcorp (RAH). Look for Ralcorp's and Sara Lee's breakups to be completed toward the beginning of 2012, with Kraft's split taking place before the end of the year.

Investors seem to be searching for more pure plays in this sector rather than widely diversified companies, according to Scott Rostan, founder of Training the Street. The advantage for people who invest in these split-up companies is that they can hone in their focus on the markets and deal with less baggage.

In the case of Sara Lee, the split involves separating the North American retail and food service businesses, which include brands such as Jimmy Dean, Ball Park and Sara Lee itself, from the company's international beverage and bakery business, which includes Senseo and Maison du Café. The North American food business had $4.1 billion in revenue in fiscal 2010; the international business reported $4.6 billion in the same time period.

The company's inability to leverage its scale because several products were being sold to different consumers helped to necessitate Sara Lee's split, explained Morningstar analyst Erin Lash.

Lash has an $18 fair value on the stock and three-star rating on the company. The average analyst target price for Sara Lee is $19.67 with the majority of the 14 analysts who cover it (eight) saying it's a hold. TheStreet Ratings gives Sara Lee a B-; it is a buy with a price target of $24.10. Shares of Sara Lee increased 8% in 2011.

Ralcorp will be spinning out its Post cereal business; the move is expected to be completed by the end of January. In this deal, Ralcorp will get about $900 million from Post. Ralcorp has incurred about $2.8 million in costs trying to separate out Post, the company said in its fourth-quarter earnings. Sales volumes of almost all of the Post brands were down in the fourth quarter except Great Grains, which had an increase of 26%. These cereals had $232.8 million in net sales volume in the fourth quarter, a 2% reduction.

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