Lamb Weston Holdings Inc (LW, Financial) has recently shown a daily gain of 2.8% and a 3-month gain of 8.72%, with an Earnings Per Share (EPS) standing at $6.92. Investors and analysts alike are keen to determine: is the stock modestly undervalued? The following valuation analysis seeks to answer this question and provide a clear perspective on Lamb Weston Holdings Inc (LW)'s current market position.
Company Introduction
Lamb Weston Holdings Inc (LW, Financial), a powerhouse in the production of frozen potato products, stands as North America's largest and the world's second-largest producer by both volume and value. Their extensive portfolio, anchored by French fries, also includes sweet potato fries, tater tots, diced potatoes, mashed potatoes, hash browns, and chips. Dominating its home market of North America with nearly 70% of its revenue, Lamb Weston Holdings Inc (LW) also distributes to over 100 other countries. McDonald's, as its largest customer, accounts for 13% of its fiscal 2023 sales. Since its 2016 spinoff from Conagra, Lamb Weston Holdings Inc (LW) has established itself as an independent entity. The stock price currently stands at $107.25, with a market cap of $15.50 billion, inviting a comparison with the GF Value, which estimates its fair value at $124.2, suggesting a potential undervaluation.
Summarize GF Value
The GF Value is a unique metric, reflecting the intrinsic value of a stock based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. Should a stock trade significantly above this line, it is considered overvalued, and conversely, if it is below, it may promise higher future returns. Lamb Weston Holdings (LW, Financial) is currently trading at a price that suggests it is modestly undervalued, presenting an opportunity for investors seeking long-term growth.
Link: These companies may deliver higher future returns at reduced risk.
Financial Strength
Investing in companies with robust financial strength is crucial to minimize the risk of permanent capital loss. Lamb Weston Holdings' financial strength can be assessed through metrics such as the cash-to-debt ratio, which currently stands at 0.05. This figure places it lower than 88.47% of its peers in the Consumer Packaged Goods industry. With a GuruFocus financial strength rank of 5 out of 10, Lamb Weston Holdings exhibits fair financial health.
Profitability and Growth
Profitability is a less risky venture when the company in question has a track record of consistent profitability. Lamb Weston Holdings has maintained profitability for the past 10 years, with a revenue of $5.90 billion and an EPS of $6.92 over the last twelve months. Its operating margin stands at an impressive 17.8%, ranking it higher than 90.3% of companies in its industry. GuruFocus ranks Lamb Weston Holdings' profitability at 8 out of 10, reflecting strong profitability.
Growth is also a pivotal factor in a company's valuation. Lamb Weston Holdings' average annual revenue growth is 12.6%, ranking it above 68.74% of its industry counterparts. Its 3-year average EBITDA growth rate is 14.8%, which is higher than 64.18% of companies in the Consumer Packaged Goods industry, indicating a solid growth trajectory.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) with its Weighted Average Cost of Capital (WACC) offers insight into its profitability and value creation. Lamb Weston Holdings' ROIC is a robust 18.81, significantly surpassing its WACC of 5.41, indicating efficient cash flow generation and value creation for shareholders.
Conclusion
In conclusion, Lamb Weston Holdings (LW, Financial) appears to be modestly undervalued, suggesting an attractive investment opportunity. The company boasts a fair financial condition, strong profitability, and promising growth, outperforming a significant portion of its industry peers. For a more detailed financial overview, investors can explore Lamb Weston Holdings' 30-Year Financials here.
To discover high-quality companies that may deliver above-average returns, visit the GuruFocus High Quality Low Capex Screener.
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.
