Lamb Weston Holdings Inc (LW, Financial) has recently experienced a daily loss of -2.15% and a notable 3-month decline of -24.43%. Despite these fluctuations, the company boasts an Earnings Per Share (EPS) of $7.49. With these figures in mind, investors are prompted to consider whether the stock is significantly undervalued. This article delves into a valuation analysis of Lamb Weston Holdings, providing insights that could influence investment decisions.
Company Introduction
Lamb Weston Holdings Inc (LW, Financial) stands as a leading entity in the branded and private-label frozen potato product space. Touted as North America's largest and the world's second-largest producer, its portfolio spans from French fries to an array of other potato-based delicacies. While the North American market accounts for nearly 70% of its revenue, Lamb Weston Holdings operates globally, with McDonald's being its largest customer. Since its spin-off from Conagra in 2016, the company has maintained a strong market presence. Currently, Lamb Weston Holdings' stock price is $79.78 per share, with a market cap of $11.50 billion, prompting an evaluation against the GF Value of $127.9 to determine its fairness.
Summarize GF Value
The GF Value is a proprietary measure that assesses the intrinsic value of a stock based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. Lamb Weston Holdings (LW, Financial) is currently deemed significantly undervalued according to this calculation, suggesting that the stock may offer a higher long-term return than its business growth alone might indicate. This assessment aligns with the GF Value Line, which serves as a benchmark for the stock's fair trading value.
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Financial Strength
When considering an investment in Lamb Weston Holdings, it's crucial to evaluate the company's financial strength. The cash-to-debt ratio, a key indicator of financial health, stands at 0.02, placing Lamb Weston Holdings in a challenging position compared to industry peers. With a financial strength rating of 5 out of 10, the company's fiscal status is fair, warranting a careful examination by potential investors.
Profitability and Growth
Consistent profitability is a sign of a less risky investment, and Lamb Weston Holdings has maintained profitability for the last decade. The company's operating margin of 15.87% is commendable, outperforming 88.88% of its industry counterparts. With a profitability rank of 8 out of 10, Lamb Weston Holdings showcases robust financial performance. Growth is equally important, and the company's average annual revenue growth of 12.6% is a positive sign for investors, reflecting a competitive edge within the Consumer Packaged Goods industry.
ROIC vs. WACC
An essential aspect of assessing a company's profitability is comparing its Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC). Lamb Weston Holdings' ROIC of 14.11 is impressive, especially when juxtaposed with its WACC of 5.39, indicating efficient capital utilization and promising returns for investors.
Conclusion
Conclusively, Lamb Weston Holdings (LW, Financial) presents as significantly undervalued. The company's fair financial condition, paired with strong profitability and a growth rate that surpasses more than half of its industry peers, makes it an attractive prospect for value investors. For a deeper understanding of Lamb Weston Holdings' financial journey, interested parties can explore its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
