Will Dean Foods (DF) Stock Be Affected By Insider Information Investigation?

NEW YORK (TheStreet) -- Dean Foods Co. (DF) has been subpoenaed by the U.S. attorney office in Manhattan for documents relating to the food and beverage company's spin-off of its White Wave Food subsidiary in August of 2012, the New York Times reports.

Federal authorities are investigating whether or not trades placed by championship golfer Phil Mickelson and sports gambler William T. Walters were done so with insider knowledge of the company's spin-off plans.

Before the spin-off was announced, Walters and Mickelson placed separate trades in Dean Foods stock which paid off in over $15 million in proceeds for Walters and $1 million for Mickelson, the Times added.

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The investigation into the trades has spanned two years and authorities believe it's possible someone inside Dean Foods provided Walters with advanced knowledge of the White Wave spin-off. Authorities theorize he then shared that information with Mickelson.

Shares of Dean Foods are up 1.94% to $17.89 late Tuesday morning.

Separately, TheStreet Ratings team rates DEAN FOODS CO as a Hold with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:

"We rate DEAN FOODS CO (DF) 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, notable return on equity and reasonable valuation levels. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, poor profit margins and a generally disappointing performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Despite its growing revenue, the company underperformed as compared with the industry average of 3.5%. Since the same quarter one year prior, revenues slightly increased by 2.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Food Products industry and the overall market, DEAN FOODS CO's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • DEAN FOODS CO 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 year. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, DEAN FOODS CO increased its bottom line by earning $3.39 versus $0.26 in the prior year. For the next year, the market is expecting a contraction of 83.8% in earnings ($0.55 versus $3.39).
  • The gross profit margin for DEAN FOODS CO is rather low; currently it is at 19.46%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -0.38% trails that of the industry average.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Food Products industry. The net income has significantly decreased by 101.8% when compared to the same quarter one year ago, falling from $492.61 million to -$8.96 million.
  • You can view the full analysis from the report here: DF Ratings Report
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