This Day On The Street
Continue to site
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

Post Is Anything but a Bargain

As it turns out, however, the spinoff has helped both companies. With Post shares now trading at around $50, the stock is up 86% since the January 2012 spinoff price of $26.89. With such strong gains following the company's recent $370 million deal for Dakota Growers Pasta, the Street has clearly bought in to the belief that management can turnaround what has been a fledging business, given Dakota's strong share in the pasta market.

The way I see it, though, with this $370 million deal -- which now raises Posts net debt position to $800 million -- the Street is placing too high of a bet at this current valuation. Again, as we've looked back over the past three-plus years and it's not as if management has a history of strong execution.

I'm not saying this deal won't work. I just don't believe that Dakota, even with its $5 billion market cap and leadership position in private label retail, materially changes Post's long-term growth outlook. Although the deal is expected to add $300 million in net revenue, I can't get excited about non-organic growth - not for a company that just reported 67% decline in net earnings for the first nine months of the year.

Investors will read this and accuse me of being overly bearish. But I don't believe I've been unfair. There are a lot of growth expectations that has been priced into this stock. But any company can put up gaudy growth numbers through acquisitions. The question, though, is how much of Post's fundamentals (good or bad) is the Street ignoring by slapping the stock with a P/E of 166?

Now I do realize that the spun-off company still has plenty to prove. Even so, I see very little upside potential and plenty of downside risk for an over-leveraged company that is aggressively entering new markets, while being led by a management team that has been at best substandard.

At the time of publication, the author held no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr 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

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

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
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
POST $71.84 0.00%
AAPL $93.74 0.00%
FB $117.58 0.00%
GOOG $693.01 0.00%
TSLA $240.76 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs