Lamb Weston Stock To $31?

Lamb Weston (LW) stock has fallen 26% during the past day, and is currently trading at $43.94. Our multi-factor assessment suggests that it may be time to sell LW stock. We have, overall, a pessimistic view of the stock, and a price of $31 may not be out of reach. We believe there are a few things to fear in LW stock given its overall Weak operating performance and financial condition. Hence, despite its Low valuation, this makes the stock look Risky.

Below is our assessment:

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Let’s get into details of each of the assessed factors but before that, for quick background: With $6.1 Bil in market cap, Lamb Weston provides value-added frozen potato products, commercial ingredients, and appetizers across global, foodservice, retail, and other market segments.

[1] Valuation Looks Low

This table highlights how LW is valued vs broader market. For more details see: LW Valuation Ratios

[2] Growth Is Moderate

• Lamb Weston has seen its top line grow at an average rate of 14.2% over the last 3 years
• Its revenues have grown 2.3% from $6.3 Bil to $6.5 Bil in the last 12 months
• Also, its quarterly revenues grew 1.1% to $1.6 Bil in the most recent quarter from $1.6 Bil a year ago.

This table highlights how LW is growing vs broader market. For more details see: LW Revenue Comparison

[3] Profitability Appears Moderate

• LW last 12 month operating income was $802 Mil representing operating margin of 12.4%
• With cash flow margin of 15.0%, it generated nearly $969 Mil in operating cash flow over this period
• For the same period, LW generated nearly $392 Mil in net income, suggesting net margin of about 6.1%

This table highlights how LW profitability vs broader market. For more details see: LW Operating Income Comparison

[4] Financial Stability Looks Weak

• LW Debt was $3.9 Bil at the end of the most recent quarter, while its current Market Cap is $6.1 Bil. This implies Debt-to-Equity Ratio of 64.1%
• LW Cash (including cash equivalents) makes up $83 Mil of $7.3 Bil in total Assets. This yields a Cash-to-Assets Ratio of 1.1%

[5] Downturn Resilience Is Weak

LW has fared worse than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

2022 Inflation Shock

• LW stock fell 41.8% from a high of $85.80 on 5 March 2021 to $49.96 on 14 March 2022 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 31 October 2022
• Since then, the stock increased to a high of $115.12 on 4 July 2023 , and currently trades at $43.94

 
2020 Covid Pandemic

• LW stock fell 53.1% from a high of $95.87 on 18 February 2020 to $45.01 on 18 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 5 January 2023

But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read LW Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

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