We downgrade our recommendation for Dean Foods (DF) to Underperform, indicating the stock will perform below the broader market.
Sales over the past three-four quarters have been suffering due to passing on of lower dairy commodity costs and reduced sales volume in the WhiteWave-Morningstar segment. Nevertheless, management has taken definitive actions to improve shareholder and consumer value and extend its low-cost position while focusing on boosting branded product business through acquisitions (including Alpro).
While the company is focused on effective pass-through of changes in dairy input costs, near-term visibility of rising raw milk prices may impede earnings and margins in the upcoming reporting periods. We also remain concerned about the company’s high debt level.Zacks Investment Research
