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On Thursday, Raymond (NSE:RYMD) James made an adjustment to the price target for Lamb Weston Holdings Inc . (NYSE:LW), reducing it from $80.00 to $75.00, but reaffirmed an Outperform rating on the stock. According to InvestingPro data, this adjustment comes as the stock trades near $54, down about 29% over the past year, with analyst targets ranging from $60 to $82. Eight analysts have recently revised their earnings expectations downward for the upcoming period. Following Lamb Weston's recent earnings report, which surpassed modest expectations for the third fiscal quarter, the company has managed to maintain its fiscal year 2025 guidance. This stabilization comes as a positive shift after the company experienced four consecutive quarters of guidance reductions. InvestingPro analysis indicates the company maintains strong fundamentals with a current ratio of 1.35, suggesting adequate liquidity to meet short-term obligations.
The analyst noted several challenges faced by Lamb Weston, including a decrease in quick-service restaurant (QSR) traffic and the need for price adjustments. Additionally, the company is dealing with increased international industry capacity and inflationary pressures on input costs, excluding potatoes. Despite these hurdles, Lamb Weston is actively seeking ways to enhance value and operational efficiency by working with a strategic advisor.
The company's management team acknowledged that Lamb Weston's path to recovery as a standalone entity might be prolonged due to the current economic and industry conditions. However, the analyst suggested that the company's current market valuation makes it an attractive candidate for acquisition, which could potentially offer a faster route to value creation for shareholders. With an EV/EBITDA ratio of 9.36 and consistent dividend growth over the past eight years, InvestingPro analysis suggests the stock is currently undervalued, making it an interesting target for value-focused investors. For deeper insights into Lamb Weston's valuation and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.
The reaffirmed Outperform rating indicates that Raymond James continues to see Lamb Weston as a stock likely to perform better than the overall market or its industry peers over a given time frame. The reduced price target reflects the firm's recalibrated expectations in light of the various challenges and strategic considerations highlighted by the company's management.
In other recent news, Lamb Weston Holdings Inc. reported third-quarter earnings for fiscal year 2025, surpassing market expectations with an earnings per share (EPS) of $1.10, exceeding the forecasted $0.89. The company also reported revenue of $1.52 billion, higher than the anticipated $1.5 billion. Following this announcement, analysts at Bernstein and Stifel adjusted their price targets for Lamb Weston. Bernstein reduced the price target from $64.00 to $62.00, maintaining a Market Perform rating, while Stifel decreased it from $68.00 to $63.00, keeping a Hold rating. Despite these adjustments, both firms acknowledged the company's positive quarterly results and reaffirmed guidance for fiscal year 2025.
Lamb Weston experienced a 4% increase in North American organic sales and a 6% rise in EBITDA, reaching $364 million, which was $62 million higher than Stifel's forecast. However, the company faced a 530 basis point contraction in gross margin year-over-year, primarily due to lower capacity utilization and price investments. In an effort to improve operational efficiency, Lamb Weston is collaborating with AlixPartners for a comprehensive review of its global supply chain. The company also highlighted its new production facility in China, which focuses on local production and reduces reliance on shipping from the United States.
Additionally, Lamb Weston is working on expanding its brand portfolio and launching new products, with executives optimistic about achieving $55 million in pretax savings for fiscal year 2025. Despite these positive developments, the company noted challenges such as declining restaurant traffic and economic uncertainty that could impact sales.
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