Lamb Weston Holdings Inc (LW, Financial) has been a topic of interest among investors, especially considering its daily gain of 1.77%, a 3-month loss of 9.67%, and an Earnings Per Share (EPS) of 6.92. Despite these figures, the question remains: is Lamb Weston Holdings modestly undervalued? In this article, we will delve into the company's valuation analysis to provide valuable insights. So, let's dive in.
Company Introduction
Lamb Weston Holdings is the world's second-largest producer of branded and private-label frozen potato products. The company boasts a diverse product range, including French fries, sweet potato fries, tater tots, diced potatoes, mashed potatoes, hash browns, and chips. Lamb Weston Holdings' customer mix comprises 58% quick-serve restaurants, 18% full-service restaurants, 8% other food service, and 16% retail. The company became independent in 2016 when it was spun off from Conagra.
As of August 30, 2023, Lamb Weston Holdings (LW, Financial) trades at $98.41 per share, with a market cap of $14.30 billion. When we compare the stock price with the GF Value of $112.12, we find that the stock appears to be modestly undervalued.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded.
If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher. Lamb Weston Holdings, at its current price of $98.41 per share, appears to be modestly undervalued, suggesting that the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength
Before investing in a company, it's crucial to assess its financial strength. Companies with poor financial strength pose a higher risk of permanent loss. The cash-to-debt ratio and interest coverage are excellent indicators of a company's financial strength. Lamb Weston Holdings has a cash-to-debt ratio of 0.09, which is worse than 79.79% of companies in the Consumer Packaged Goods industry. The overall financial strength of Lamb Weston Holdings is fair, with a score of 5 out of 10.
Profitability and Growth
Consistently profitable companies offer less risk for investors. Lamb Weston Holdings has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $5.40 billion and Earnings Per Share (EPS) of $6.92. Its operating margin is 16.49%, which ranks better than 88.01% of companies in the Consumer Packaged Goods industry. Overall, the profitability of Lamb Weston Holdings is strong, with a rank of 8 out of 10.
Growth is a vital factor in a company's valuation. Lamb Weston Holdings's 3-year average revenue growth rate is better than 69.15% of companies in the Consumer Packaged Goods industry. Its 3-year average EBITDA growth rate is 14.8%, which ranks better than 64.37% of companies in the industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) and the weighted cost of capital (WACC) can provide insights into its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. For the past 12 months, Lamb Weston Holdings's ROIC is 16.56, and its WACC is 5.46.
Conclusion
In conclusion, Lamb Weston Holdings (LW, Financial) stock appears to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 64.37% of companies in the Consumer Packaged Goods industry. To learn more about Lamb Weston Holdings stock, you can check out its 30-Year Financials here.
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