New York, September 21 (FinanceEnquiry.com) – Analyst Eric Katzman at Deutsche Bank Securities reports on Katzman’s Kitchen.
In a research note published on September 20, the analyst mentions that BUY rating has been reiterated for General Mills and its target price has been raised from $44 to $46. Furthermore, for packaged food companies of the US, considerable challenges can be produced by passage of CA Prop 37 on November 6, 2012, even though receiving nominal attention.
Forcing companies to select among labeling challenges, product reformulation and scale economies, Prop 37 might create exact requirements for GMO in opposition to non-GMO labeling. Furthermore, heavy litigation is expected with potential US government or FDA intervention, even if Prop 37 passes.
In addition to this, inclusive of consumer backlash over GMO awareness, distribution or manufacturing inefficiencies, availability of non-GMO ingredient and risk of product reformulation, this will create expensive challenges. Also it is apparent that companies, which are US centric, are most exposed, despite the fact that fruit and milk are excluded from requirements of Prop 37.
Moreover, it has been noticed that in order to deal with the new regulatory landscape and its sales or cost implications, Campbell Soup Company (NYSE: CPB), ConAgra Foods (NYSE: CAG), General Mills (NYSE: GIS), The Hershey Company (NYSE: HSY), Smucker (NYSE: SJM), KRFT and Snyder’s- Lance (NASDAQ: LNCE) can be forced, although it is very complicated to determine the fundamental impact.
As a group, a neutral outlook is maintained on packaged food. Although being costly against the S&P 500, valuation is seen as logical in absolute terms i.e., 16x C2013E P/E and 10x EV/EBITDA, the analyst adds further.
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