On Wednesday, Truist Securities maintained a Hold rating on Flowers Foods (NYSE:FLO) stock with a steady price target of $23.00. Currently trading at $19.56, InvestingPro analysis suggests the stock is undervalued. This outlook follows Flowers Foods' announcement of a definitive agreement to purchase Simple Mills for $795 million in an all-cash transaction.
The acquisition, expected to finalize in the first quarter of 2025, is projected to be slightly dilutive to Flowers Foods' earnings per share (EPS) in 2025 but accretive in 2026.
Simple Mills, founded in 2012, is recognized as a rapidly expanding brand in the "better for you" snacks category, which includes cookies, crackers, snack bars, and baking products. The company is anticipated to achieve $240 million in sales for the year 2024, marking a 14% year-over-year increase. For context, Flowers Foods, with its $5.12 billion in revenue and 4.78% dividend yield, shows strong financial health according to InvestingPro metrics.
The acquisition is poised to immediately enhance the margins and sales growth of Flowers Foods' existing operations. Although the incremental revenue from Simple Mills represents approximately 5% of Flowers Foods' total revenue, Truist Securities perceives the deal positively for several reasons.
The firm's analysis suggests that the strategic move aligns with the current market trends towards healthier snack options and could provide a boost to Flowers Foods' product portfolio, potentially supporting its expected net income growth this year.
In other recent news, Flowers Foods has revealed a range of significant developments. The company has reported strong performance in its Q3 2024 earnings call, with growth in fresh packaged breads and market share gains. The company's annual sales in 2023 were $5.1 billion. Additionally, Flowers Foods announced an increase in its quarterly dividend to $0.24 per share, marking a 4.3% rise from the previous year.
The company has updated its Code of Conduct, integrating its previous Code of Business Conduct and Ethics with the existing Code of Conduct. This updated code offers clearer instructions for internal reporting of violations and addresses the handling of potential conflicts of interest. The company has also made the full text of the new Code available on its website.
In terms of future expectations, CEO McMullian has expressed confidence in achieving an EBITDA margin of 13-14% over time. The company has outlined strategies for 2025 focusing on branded retail growth and cost savings, including the planned expansion of the Wonder brand and innovation within the Dave's Killer Bread snack line.
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