Why TreeHouse Foods (THS) Stock Is Gaining In Pre-Market Trading Today

NEW YORK (TheStreet) -- Shares of TreeHouse Foods Inc. (THS) are higher by 5.12% to $83.89 in pre-market trading on Monday morning after the company announced it will purchase Flagstone Foods, a privately held company, for $860 million.

TreeHouse Foods, a food manufacturer servicing the retail grocery and foodservice industries, expects the purchase of Flagstone, a healthy snacks, dried fruit, and nut distributer, to increase annual revenue by approximately $750 million.

The company believes the acquisition will have an impact of five to eight cents on 2014 earnings, and add approximately 24 to 28 cents in EPS the first full year after the deal is closed.

TreeHouse is estimating its pro-forma annual sales will approach $3.5 billion, and adjusted EBITDA could exceed $450 million. The deal is expected to close in the 2014 third quarter.

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Separately, TheStreet Ratings team rates TREEHOUSE FOODS INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate TREEHOUSE FOODS INC (THS) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

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

  • The revenue growth came in higher than the industry average of 3.1%. Since the same quarter one year prior, revenues rose by 14.6%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The debt-to-equity ratio is somewhat low, currently at 0.70, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.80 is somewhat weak and could be cause for future problems.
  • TREEHOUSE FOODS INC's earnings per share declined by 38.7% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, TREEHOUSE FOODS INC reported lower earnings of $2.34 versus $2.39 in the prior year. This year, the market expects an improvement in earnings ($3.60 versus $2.34).
  • Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.
  • 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 37.6% when compared to the same quarter one year ago, falling from $22.97 million to $14.32 million.
  • You can view the full analysis from the report here: THS Ratings Report
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