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On Monday, DA Davidson analyst Brian Holland adjusted the price target for Flowers Foods (NYSE:FLO) shares, reducing it to $21 from the previous $24, while maintaining a Neutral rating on the stock. Holland highlighted concerns about the softening trends in the packaged bakery sector, suggesting that a turnaround might be uncertain. Currently trading at $19.09, near its 52-week low of $18.85, the stock sits below the broader analyst target range of $20-30. According to InvestingPro analysis, the company’s Fair Value suggests potential upside from current levels.
Flowers Foods, known for its bakery products, faces challenges within its market segment. The analyst pointed out that the company’s asset base and distribution methods bind it to categories currently under pressure. Despite these challenges, the company maintains strong fundamentals with a healthy 5% dividend yield and has raised its dividend for 11 consecutive years, as noted by InvestingPro. In an effort to adapt, Flowers Foods has made strategic moves, such as focusing on its Wonder snack cakes brand, which is recognized nationally.
The company’s decision to leverage the Wonder brand is seen as a logical step, given its high consumer awareness. However, Holland adopts a cautious stance, preferring to observe the outcomes of this strategy before drawing conclusions.
Additionally, Flowers Foods has been compelled to look beyond its traditional market to drive growth, leading to the acquisition of Simple Mills. This move, according to the analyst, came at a high cost and without clear synergies, indicating potential risks associated with the integration of the new asset.
Despite these challenges, Holland suggests that the current relative valuation of Flowers Foods might already account for these issues, assuming that the headwinds the company faces are cyclical rather than long-term structural changes in the industry. The analyst’s comments reflect a view that the market may have adjusted expectations for Flowers Foods, considering the potential for recovery if the negative trends prove to be temporary.
In other recent news, Flowers Foods Inc. has witnessed a series of significant developments. The company’s outlook was revised from stable to negative by S&P Global following the announcement of its $795 million acquisition of Simple Mills. The acquisition is expected to increase Flowers Foods’ leverage, prompting a warning from S&P Global of a potential downgrade if the company’s adjusted leverage does not improve within 24 months of the acquisition close.
Simultaneously, Truist Securities lowered its price target for Flowers Foods to $20 while maintaining a hold rating on the stock. The revised price target was based on the company’s latest financial results and guidance, which suggested another year of only modest sales growth.
In recent financial updates, Flowers Foods reported fourth quarter earnings that surpassed analyst expectations, but revenue fell short of estimates. The company reported adjusted earnings per share of $0.22 for the fourth quarter, beating the analyst consensus of $0.21, but revenue came in at $1.11 billion, below the $1.13 billion analysts had forecast. For the upcoming fiscal year 2025, the company expects net sales of $5.403 billion to $5.487 billion, representing 5.9% to 7.5% growth compared to the prior year.
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