Why Dean Foods (DF) is a Must-Add Stock to Your Portfolio?

Dean Foods CompanyDF appears promising, backed by its robust brand portfolio, ongoing strategic initiatives and focus on improving core business activities. All these endeavors position the company well to generate higher returns, going forward.

Shares of Dean Foods have yielded a return of nearly 32% in the past three months against the Zacks categorized Consumer Staples sector’s fall of 4%. Also, this Zacks Rank #2 (Buy) stock exhibits a VGM Score of “A” with a long-term earnings growth rate of 12%, highlighting its growth potential. Moreover, the company’s share price is currently hovering close to its 52-week high of $ 22.31.

Growth Factors

Dean Foods’ strong portfolio of brands provides a competitive advantage, alongside fortifying its customer base. In addition, being one of the low-cost producers, the company is well positioned in the industry, on one hand; while it strives to extend this advantage through cost-reduction activities across its business, on the other.

Further, management remains committed toward taking strategic steps to optimize its capital allocation and concentrate on core business activities. The company’s strategic measures are primarily focused on three controllable factors – price realization, cost productivity and volumes at margins – which will aid in delivering appropriate returns.

With this respect, the company underwent a major transformation into core dairy products in 2013 and has since been concentrating to enhance its dairy business. This is evident from its buyout of Friendly’s Ice Cream manufacturing and retail operations and continued success of its previously introduced DairyPure and TruMoo brands.

Backed by these factors and a healthy financial status, Dean Foods’ bottom line has outperformed estimates, by an average of 5.4% in the trailing four quarters. In third-quarter 2016, its earnings were in line with the Zacks Consensus Estimate and surged year over year, driven by a decline in raw milk prices . Also, sales exceeded estimates, thus scoring a hat-trick of positive sales surprises.