Street Estimates are Too Low on Snyder's-Lance (LNCE) - Jefferies

Jefferies analyst, Akshay Jagdale, believes that street estimates for Snyder's-Lance (NASDAQ: LNCE) do not accurately reflect the pending DMND acquisition. He raised numbers but maintained his price target and Buy rating.

DMND has strong brands and was in the early stages of reinvigorating its R&D pipeline. The deal provides significant synergy opportunities and an enhanced cash flow profile (much lower interest burden on DMND’s brands and NOL’s). The deal also frees up significant cash flow, which, given the stronger combined branded portfolio, should result in higher returns on a proforma basis.

Strategically, the combination is highly complementary – LNCE’s manufacturing and distribution capabilities are combined with DMND’s strong brand equities and marketing/ R&D capabilities.

Simply adding DMND’s LTM sales of $842M to LNCE’s 2015 consensus sales estimate of $1.69B implies proforma sales of $2.5B or 50% growth. However, the 2016 consensus sales estimate for LNCE currently stands at $2.1B (or 25% growth) implying that most analysts have yet to incorporate the deal into their models. As for 2016 EPS estimates, consensus is at $1.43 compared to mgmt’s guidance of $1.35 to $1.42 (or 24-30% growth) for the legacy business.

In light of the deal timing mgmt decided to provide preliminary 2016 guidance on its 3Q call (November) instead of 4Q (February). However, mgmt. did not provide any proforma guidance – legacy business expected to grow sales 3-5% and EPS expected to grow 24-30% driven by the company’s drive for 10 margin initiative.

The analyst increased his FY16 and FY17 EPS estimates to $1.53 and $1.86, respectively, from $1.39 and $1.69 previously.

On a P/E basis, LNCE trades at 23.6x his NTM EPS estimate (pro forma for DMND acquisition), compared to its consumer growth peer group average of 28.2x and its small/mid-cap packaged food peers at 22.4x. On a pro forma EV/EBITDA basis, the stock currently trades at 11.8x compared to its consumer growth peers at 13.9x and its small/mid-cap packaged food peers at 12.1x.

The $40 price target values the company at 26x 2016 EPS estimate of $1.53, which represents a 5% discount to its consumer growth peers.

For an analyst ratings summary and ratings history on Lance, Inc. click here. For more ratings news on Lance, Inc. click here.

Shares of Lance, Inc. closed at $35.09 yesterday.

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