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Is TreeHouse Foods Stock a Buy or Hold at a P/E Multiple of 14.3X?
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TreeHouse Foods, Inc. (THS - Free Report) is trading at an attractive valuation, considering its price-to-earnings (P/E) multiple, which is lower than both the Zacks Food – Miscellaneous industry and the broader Zacks Consumer Staples sector. THS’ forward 12-month P/E ratio is 14.28, lower than the industry average of 16.41 and the sector average of 18.12.
This discrepancy in valuation suggests that the stock may be undervalued relative to its peers, presenting a compelling opportunity for investors seeking value in the consumer staples space. With a Value Score of B, TreeHouse Foods strengthens its investment appeal, reflecting a favorable risk-reward profile.
Image Source: Zacks Investment Research
Technical indicators are supportive of TreeHouse Foods’ performance. The stock is trading above both its 50-day and 200-day moving averages, indicating robust upward momentum and price stability. This technical strength reflects positive market perception and confidence in the company’s financial health and prospects.
TreeHouse Foods has outperformed the broader market, reflecting its steady performance amid macroeconomic uncertainty. Shares of THS have risen 10.3% in the past three months compared with the industry and Zacks Consumer Staples sector’s growth of 9% each and the S&P 500’s 2.6% rise. Investors may find this combination of value, technical strength and relative market outperformance a good reason to consider Flowers Foods as a long-term investment opportunity.
What’s Driving THS’ Momentum?
TreeHouse Foods stands out as strategically positioned at the convergence of two robust, long-term consumer trends. These include the growth of private-label groceries in North America and the ongoing shift in consumer preferences toward snacking. The company’s private label products have consistently gained market share over the past two decades, and with grocery retailers making strategic investments in private brands, THS stands to benefit significantly.
The elevated price gaps between national and private brands support continued growth in the private label sector. Successful execution in categories such as cookies, refrigerated dough, pretzels and pickles, along with strategic investments and an expanding net sales pipeline, reinforces TreeHouse Foods' competitive position as a leading private brand supplier.
Strategic acquisitions have played a crucial role in expanding THS’ product offerings. Notable acquisitions in 2024, including Bick's pickles, Habitant pickled beets, Woodman's horseradish and McLarens pickled onions brands from The J.M. Smucker, have significantly diversified the company's revenue streams and enhanced its portfolio. These additions have bolstered TreeHouse Foods' position in the market by catering to a wider range of consumers.
TMOS Initiatives Bode Well for THS
Key initiatives to enhance the supply chain include the implementation of the TreeHouse Management Operating System (“TMOS”) and improvements in procurement and distribution. These efforts are intended to enhance operational execution, increase profit margins and build stronger customer relationships.
In the first half of 2024, the TMOS initiatives have led to notable improvements in overall equipment effectiveness and service quality. TreeHouse Foods expects to achieve $50 million in gross cost savings in the second half of 2024, driving margin expansion. The company expects increased volume during this period, fueled by seasonal demand in categories such as coffee, creamer, hot cereal, refrigerated dough and broth. It also foresees meeting its objectives by restarting the broth facility during this time frame.
TreeHouse Foods’ transformation journey is poised for success as it focuses on strengthening and expanding its presence in the snacking and beverage sectors. This effort includes improving supply-chain operations and delivering exceptional service to drive organic growth and create long-term value for stakeholders. Reflecting the positive trends, the Zacks Consensus Estimate for EPS has seen upward revisions. Over the past 30 days, analysts have lowered their estimates for the current fiscal year from $2.31 to $2.34 per share.
TreeHouse Foods: Risks to Watch
TreeHouse Foods has been battling supply-chain headwinds for a while now. In the third quarter of 2024, operations and supply-chain-related challenges served as a headwind of $3 million, mainly due to increased labor costs and the broth facility restoration effect. The restart of the broth facility also affected the company’s volumes, which hurt sales.
Supply-chain hurdles associated with the broth facility also affected the gross margin. The gross margin of 16.3% contracted 0.3 percentage points from the year-ago quarter due to the expenses associated with restoring its broth facilities. Considering the company's commodity basket and the trends observed so far this year, certain input costs like cocoa have remained inflationary. THS had earlier stated that it expects modest overall inflation across its basket for the full year. However, it has been undertaking pricing actions to cover cocoa inflation.
High operating expenses are another concern. TreeHouse Foods’ total operating expenses were $132.3 million in the second quarter of 2024, up from the $102.9 million reported in the year-ago quarter due to lower TSA income, and increased personnel and capability investments. Management revised its 2024 adjusted EBITDA guidance to a range of $360-$380 million, lowering the upper end of the range by $10 million. This revision accounts for performance in the first half of the year and assumes that current consumer-driven mix trends will persist in the second half.
Investor Strategy for THS
TreeHouse Foods’ attractive valuation, solid technical performance and market outperformance highlight the company’s strength. TreeHouse Foods has strengthened its market position by concentrating on private-label and snack products that align with major consumer trends. Despite facing challenges such as supply-chain disruptions and increasing operating costs, the company's strategic moves indicate potential for long-term growth. Current investors should retain their positions in THS stock, while new investors might wait for a more favorable entry point. TreeHouse Foods currently carries a Zacks Rank #3 (Hold).
CHEF has a trailing four-quarter earnings surprise of 33.7%, on average. The Zacks Consensus Estimate for The Chef’s Warehouse’s current fiscal year sales and earnings indicates growth of 9.7% and 12.6%, respectively, from the year-ago reported numbers.
Flowers Foods (FLO - Free Report) , a packaged bakery food company, currently carries a Zacks Rank #2. FLO has a trailing four-quarter earnings surprise of 1.9%, on average.
The Zacks Consensus Estimate for Flowers Foods’ current financial-year sales and earnings implies growth of around 1% and 5%, respectively, from the year-ago reported numbers.
McCormick (MKC - Free Report) is a leading manufacturer, marketer and distributor of spices, seasonings, specialty foods and flavors. It currently carries a Zacks Rank of 2.
The Zacks Consensus Estimate for McCormick & Company’s current fiscal-year earnings indicates an advancement of 5.9% from the year-ago reported figures. MKC has a trailing four-quarter earnings surprise of 13.8%, on average.
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Is TreeHouse Foods Stock a Buy or Hold at a P/E Multiple of 14.3X?
TreeHouse Foods, Inc. (THS - Free Report) is trading at an attractive valuation, considering its price-to-earnings (P/E) multiple, which is lower than both the Zacks Food – Miscellaneous industry and the broader Zacks Consumer Staples sector. THS’ forward 12-month P/E ratio is 14.28, lower than the industry average of 16.41 and the sector average of 18.12.
This discrepancy in valuation suggests that the stock may be undervalued relative to its peers, presenting a compelling opportunity for investors seeking value in the consumer staples space. With a Value Score of B, TreeHouse Foods strengthens its investment appeal, reflecting a favorable risk-reward profile.
Image Source: Zacks Investment Research
Technical indicators are supportive of TreeHouse Foods’ performance. The stock is trading above both its 50-day and 200-day moving averages, indicating robust upward momentum and price stability. This technical strength reflects positive market perception and confidence in the company’s financial health and prospects.
TreeHouse Foods has outperformed the broader market, reflecting its steady performance amid macroeconomic uncertainty. Shares of THS have risen 10.3% in the past three months compared with the industry and Zacks Consumer Staples sector’s growth of 9% each and the S&P 500’s 2.6% rise. Investors may find this combination of value, technical strength and relative market outperformance a good reason to consider Flowers Foods as a long-term investment opportunity.
What’s Driving THS’ Momentum?
TreeHouse Foods stands out as strategically positioned at the convergence of two robust, long-term consumer trends. These include the growth of private-label groceries in North America and the ongoing shift in consumer preferences toward snacking. The company’s private label products have consistently gained market share over the past two decades, and with grocery retailers making strategic investments in private brands, THS stands to benefit significantly.
The elevated price gaps between national and private brands support continued growth in the private label sector. Successful execution in categories such as cookies, refrigerated dough, pretzels and pickles, along with strategic investments and an expanding net sales pipeline, reinforces TreeHouse Foods' competitive position as a leading private brand supplier.
Strategic acquisitions have played a crucial role in expanding THS’ product offerings. Notable acquisitions in 2024, including Bick's pickles, Habitant pickled beets, Woodman's horseradish and McLarens pickled onions brands from The J.M. Smucker, have significantly diversified the company's revenue streams and enhanced its portfolio. These additions have bolstered TreeHouse Foods' position in the market by catering to a wider range of consumers.
TMOS Initiatives Bode Well for THS
Key initiatives to enhance the supply chain include the implementation of the TreeHouse Management Operating System (“TMOS”) and improvements in procurement and distribution. These efforts are intended to enhance operational execution, increase profit margins and build stronger customer relationships.
In the first half of 2024, the TMOS initiatives have led to notable improvements in overall equipment effectiveness and service quality. TreeHouse Foods expects to achieve $50 million in gross cost savings in the second half of 2024, driving margin expansion. The company expects increased volume during this period, fueled by seasonal demand in categories such as coffee, creamer, hot cereal, refrigerated dough and broth. It also foresees meeting its objectives by restarting the broth facility during this time frame.
TreeHouse Foods’ transformation journey is poised for success as it focuses on strengthening and expanding its presence in the snacking and beverage sectors. This effort includes improving supply-chain operations and delivering exceptional service to drive organic growth and create long-term value for stakeholders. Reflecting the positive trends, the Zacks Consensus Estimate for EPS has seen upward revisions. Over the past 30 days, analysts have lowered their estimates for the current fiscal year from $2.31 to $2.34 per share.
TreeHouse Foods: Risks to Watch
TreeHouse Foods has been battling supply-chain headwinds for a while now. In the third quarter of 2024, operations and supply-chain-related challenges served as a headwind of $3 million, mainly due to increased labor costs and the broth facility restoration effect. The restart of the broth facility also affected the company’s volumes, which hurt sales.
Supply-chain hurdles associated with the broth facility also affected the gross margin. The gross margin of 16.3% contracted 0.3 percentage points from the year-ago quarter due to the expenses associated with restoring its broth facilities. Considering the company's commodity basket and the trends observed so far this year, certain input costs like cocoa have remained inflationary. THS had earlier stated that it expects modest overall inflation across its basket for the full year. However, it has been undertaking pricing actions to cover cocoa inflation.
High operating expenses are another concern. TreeHouse Foods’ total operating expenses were $132.3 million in the second quarter of 2024, up from the $102.9 million reported in the year-ago quarter due to lower TSA income, and increased personnel and capability investments. Management revised its 2024 adjusted EBITDA guidance to a range of $360-$380 million, lowering the upper end of the range by $10 million. This revision accounts for performance in the first half of the year and assumes that current consumer-driven mix trends will persist in the second half.
Investor Strategy for THS
TreeHouse Foods’ attractive valuation, solid technical performance and market outperformance highlight the company’s strength. TreeHouse Foods has strengthened its market position by concentrating on private-label and snack products that align with major consumer trends. Despite facing challenges such as supply-chain disruptions and increasing operating costs, the company's strategic moves indicate potential for long-term growth. Current investors should retain their positions in THS stock, while new investors might wait for a more favorable entry point. TreeHouse Foods currently carries a Zacks Rank #3 (Hold).
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The Chef’s Warehouse (CHEF - Free Report) , which engages in the distribution of specialty food products, currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
CHEF has a trailing four-quarter earnings surprise of 33.7%, on average. The Zacks Consensus Estimate for The Chef’s Warehouse’s current fiscal year sales and earnings indicates growth of 9.7% and 12.6%, respectively, from the year-ago reported numbers.
Flowers Foods (FLO - Free Report) , a packaged bakery food company, currently carries a Zacks Rank #2. FLO has a trailing four-quarter earnings surprise of 1.9%, on average.
The Zacks Consensus Estimate for Flowers Foods’ current financial-year sales and earnings implies growth of around 1% and 5%, respectively, from the year-ago reported numbers.
McCormick (MKC - Free Report) is a leading manufacturer, marketer and distributor of spices, seasonings, specialty foods and flavors. It currently carries a Zacks Rank of 2.
The Zacks Consensus Estimate for McCormick & Company’s current fiscal-year earnings indicates an advancement of 5.9% from the year-ago reported figures. MKC has a trailing four-quarter earnings surprise of 13.8%, on average.