This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Diamond Foods Valuation Under Pressure

Stocks in this article: DMND OAK BAC HSY

On the positive side, Diamond Foods management stressed on a conference call with investors that restatements and 2012 earnings remove a cloud of uncertainty and will help the company focus on the future and growing its popular up-market snacks brands once more.

Meanwhile, Diamond Foods also has a "runway" to turn its earnings around, after the company reached a forbearance agreement with syndicate of bank lenders by Bank of America (BAC - Get Report), which removes restrictive loan covenant and gives management the flexibility to re-position the company.

Already, interim Diamond Foods management laid out a restructuring of the firm's Emerald and Kettle snack brands, which may help the company's long-term earnings.

Thilo Wrede, an analyst with Jefferies, wrote in a note to clients that while Diamond Foods earnings helps to remove some uncertainty, they also raise the prospect that profits will continue to fall - making valuation a tough exercise.

"Instead of driving growth through promotions and discounting, gains for both brands are supposed to come more from innovation, equity building measures and price increases to position them clearly in the premium segment, thereby enhancing the attractiveness for certain consumer segments," writes Wrede, of Diamond Foods new Emerald and Kettle strategies.

While Wrede says the approach may grow margins over time, it might pressure the company during a transition that will likely last for many quarters.

"While we are still in the process of updating our model and reviewing our outlook for the company, we believe that a reduced growth outlook, even if at least partially offset by a better margin picture, will continue to pressure valuation for the stock - at least for the time being," wrote Wrede in a not to clients that maintained a 'Hold' rating and $27 price target.

Before calculating a new valuation, the analyst said Diamond Foods needs to give more visibility on its earnings, supply costs and profit margin outlook. Wrede did note that after a sharp share price drop, Diamond Foods valuation implies a 12.8x enterprise value to EBITDA multiple - when counting the dilution of Oaktree's warrants - which is in line with competitors like Hershey's (HSY - Get Report).

2 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,387.21 -291.49 -1.65%
S&P 500 2,029.55 -27.54 -1.34%
NASDAQ 4,681.4970 -90.2660 -1.89%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs