NEW YORK (TheStreet) -- Pinnacle Foods (PF) shares are falling hard, down -5.8% to $31.33, on Tuesday following news that rival Pilgrims Pride (PPC) has proposed a takeover bid for Hillshire Brands (HSH) for $6.4 billion.
Pinnacle Foods had agreed to a takeover bid from Hillshire Brands on May 12 for $4.2 billion. However, as a condition of the Pilgrim's Pride takeover bid, Hillshire has to nix its deal with Pinnacle Foods.
As part of the bid, Pilgrim's Pride has agreed to cover the $163 million cancellation fee that Hillshire and Pinnacle had previously agreed on.
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TheStreet Ratings team rates PINNACLE FOODS INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate PINNACLE FOODS INC (PF) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations and impressive record of earnings per share growth. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity, generally higher debt management risk and poor profit margins."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- PF's revenue growth has slightly outpaced the industry average of 3.2%. Since the same quarter one year prior, revenues slightly increased by 5.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
- PINNACLE FOODS INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, PINNACLE FOODS INC increased its bottom line by earning $0.77 versus $0.47 in the prior year. This year, the market expects an improvement in earnings ($1.74 versus $0.77).
- Powered by its strong earnings growth of 59.09% and other important driving factors, this stock has surged by 37.50% over the past year, outperforming the rise in the S&P 500 Index during the same period. Setting our sights on the months ahead, however, we feel that the stock's sharp appreciation over the last year has driven it to a price level which is now relatively expensive compared to the rest of its industry. The implication is that its reduced upside potential is not good enough to warrant further investment at this time.
- Currently the debt-to-equity ratio of 1.55 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Even though the debt-to-equity ratio is weak, PF's quick ratio is somewhat strong at 1.01, demonstrating the ability to handle short-term liquidity needs.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. In comparison to the other companies in the Food Products industry and the overall market, PINNACLE FOODS INC's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- You can view the full analysis from the report here: PF Ratings Report