Jeff Sutton of ValueTree Investments presented his in-depth investment thesis on Treehouse Foods (NYSE: THS) at Best Ideas 2018.
Treehouse Foods is the largest provider of private label food and beverage products in the U.S. The company’s product lines span a variety of categories, including snack nuts, frozen baked goods, cookies, crackers, pretzels, cereals, dry pasta, and macaroni and cheese dinners, powdered drink mixes, salad dressings, Mexican sauces, jams and jellies, and pickles. TreeHouse’s stock price has declined by ~50% from highs in April 2017, following a series of earnings misses, lowered guidance, and management transitions. The company’s underlying fundamentals remain strong. THS recently traded at a trailing P/E of ~15x, EV/EBITDA of ~8x, and merely 8.6x free cash flow, an FCF yield of ~12%. THS is valued at 20-50% below comparable multiples. With the recent drop in the stock price following the 3Q17 earnings announcement, TreeHouse is valued near its lowest historic level based on price to free cash flow. If THS returned to the historic average P/FCF multiple of 16x, based on recent fundamentals, the stock price would be valued at ~$83 per share. Combining the potential results from TreeHouse 2020 (a recently announced restructuring plan) with the average P/FCF multiple for the industry, THS could be worth $170 per share. Jeff believes a company’s underlying long-term intrinsic value is driven by a stream of sustainable and growing FCF. In the case of THS, a 7% FCF yield (~14x FCF) implies a valuation of ~$98 per share, roughly double the recent stock price.
About the instructor:
Jeff Sutton has over 18 years of investment experience, and has been a Chartered Financial Analyst (CFA) charterholder for over 14 years. Prior to founding ValueTree, he worked as an equity analyst for a long-short hedge fund, as a project manager at a $1 billion family office, and as an associate at a Southeastern private equity firm. Academically, Mr. Sutton graduated summa cum laude and Phi Beta Kappa from Rhodes College with two B.A. degrees, with majors in International Business and French. He has served as a member of the Rhodes College Alumni Executive Board. He has also earned a Master of Business Administration (MBA) degree from the Darden Graduate School of Business Administration at the University of Virginia, where he was the Senior Portfolio Manager of the Darden Fund.
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