Sara Lee Analyst Upgrades Rating to Hold

NEW YORK ( TheStreet) -- Sara Lee ( SLE) stock has been upgraded to hold from sell based on improved outlook for the company.

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Argus analyst Erin Smith said in a research note that she had been concerned that Sara Lee wouldn't be able to find buyers for the businesses it wanted to sell following the resignation of CEO Brenda Barnes, who initiated and led the company's portfolio repositioning to focus on its core meats and beverage businesses.

"However, the past few months have proven otherwise," she said.

Smith noted that during this period, Sara Lee has either completed or announced deals to sell almost all its household and body care businesses, and its North American Fresh Bakery business, both of which were underperforming segments.

"We believe that these asset sales will help the company to focus on its higher-margin, higher-growth businesses."

Still, Smith cautioned that she expects the company's near-term sales and earnings growth to be limited by company-specific and industry-wide factors, including renewed cost inflation for coffee and other products. She added that the company also expects difficult year-over-year comparisons in the second quarter and continued challenges in markets such as Spain and the Netherlands.

"There have also been rumors that Sara Lee might be bought out. We believe that these rumors are already reflected in the share price." Smith expects Sara Lee stock to move mainly in line with the S&P over the next year.

Last week, the Wall Street Journal reported that Sara Lee plans to follow through with a plan to split its meats and coffee businesses into two separate companies, convinced that this action would make it easier for a potential buyer to make bids for the businesses independent of each other. Sara Lee's coffee business is considered to be one of its strongest assets.

Shares of Sara Lee have fallen 0.2% to $18.30 in afternoon trading, while J&J Snack Foods ( JJSF) has inched 0.2% lower to $48.68. Green Mountain Coffee Roasters ( GMCR) is down 0.9% to $35.17.

Reports say that several parties, including private equity firms, have come forward with interest in bidding for Sara Lee.

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-- Written by Andrea Tse in New York.

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