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Lamb Weston (LW) Earnings Preview

by | Oct 3, 2021

Lamb Weston (LW) reporting earnings on Thursday before the open with the Street looking for $0.38 on $1B in sales. Next quarter is guided to $0.59 on $1.01B while the FY is $2.52 and $4.13B. Shares have closed lower the last three reports and seven of the last nine with an average closing move of 4.7%. The current implied move is 5.8%. LW has seen a lot of bullish flows lately including 2,000 November $65/$50 bull risk reversals, 1750X October $55 short puts, 1750X October $60 short puts, and 2,850 January $70 calls. Shares are back at the low-end of a big volume node from 2020 and trying to base with room up to $65 and then a big low-volume gap back to $75. The $9.05B company trades 16.4X earnings, 2.47X sales, and 11.5X cash with a 1.5% yield. LW has seen a surge in their branded portfolio of brands over the last 18 months as at-home consumption rises and their market share, especially around frozen, has grown to be best-in-class among peers. They continue to focus on capacity additions and productivity savings as they scale up into new channels and regions. LW like sees strength from demand in foodservice, especially QSR. Margins are expected to be pressured in the 1H but guidance should remain confident that its transitory and they can return to pre-pandemic levels of demand soon. Analysts have an average target for shares of $92 with a Street High $100. JP Morgan positive on 7/28 noting that while they appreciate that an unfavorable cost environment is likely to pressure the company’s near-term results by more than expected. However, higher costs are not exclusive to Lamb, and the extent of the drop is surprising given the company’s rebound in volumes, confident tone on pricing, and expectations that gross margin will return to pre-Covid levels in the second half of 2022. Jefferies upgrading to Buy citing still-tight industry capacity and high edible oil costs which bode well for a return to pricing power across all segments at Lamb that consensus has yet to price in. Hedge fund ownership rose 13.5%. Shares are back near a spot where insiders were active in 2020 including a $150K buy from a director at $59.70. Short interest is 1.62%.

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