Shares of Lamb Weston (LW, Financial) surged 9.55% following reports of activist investor Jana Partners (Trades, Portfolio) acquiring a 5% stake in the company, sparking speculation about a potential sale of the company. This strategic move ignited investor interest, leading to today's notable increase in stock price, which now stands at $77.78.
Lamb Weston Holdings Inc, North America's largest and the world's second-largest producer of branded and private-label frozen potato products, has captured the market's focus. The company boasts a diversified product portfolio, primarily centered around French fries. Its largest customer, McDonald's, contributes to 14% of its fiscal 2024 sales, showcasing a strong revenue stream.
From a financial standpoint, Lamb Weston presents a mixed picture. The company's market capitalization has reached $11.09 billion, while it currently trades at a price-to-earnings (P/E) ratio of 18.26. However, certain financial metrics indicate potential stress, such as an Altman Z-score of 2.9, placing it in the grey zone, pointing towards some level of financial stress.
In terms of valuation, the stock is significantly undervalued when compared to the GuruFocus GF Value. The GF Value is estimated at $113.02, which suggests a considerable upside potential from its current trading price. Additionally, the stock's forward price-to-earnings ratio stands at 18.28, aligning closely with its current P/E ratio, indicating consistent earnings expectations.
On the growth front, Lamb Weston has demonstrated an impressive revenue growth rate of 21.2% over the past three years. Nevertheless, this growth has not been without challenges, as indicated by a -27.7% earnings growth rate in the past year. Despite this, the company has maintained strong revenue growth and remains a significant player in the consumer defensive sector, particularly in the packaged foods subindustry.
Despite issuing $1 billion in new debt over the last three years, Lamb Weston has managed its debt levels acceptably. With a debt-to-equity ratio of 2.21, the company continues to navigate the complexities of financing while sustaining its operations.
Investors should note that while the company's financial metrics show some areas of concern, its significant market presence and undervaluation according to GF Value could present a valuable investment opportunity, particularly if the speculated sale materializes.
