What Happened?
Shares of potato products company Lamb Weston (NYSE: LW) fell 2.1% in the afternoon session after BNP Paribas Exane downgraded the stock to 'Neutral' from 'Outperform', citing concerns over intensifying competition.
The firm also significantly lowered its price target on the shares. This move followed a similar action from Bank of America Securities, which also cut its price target while maintaining a 'Neutral' rating. The analyst actions came on the heels of the food processing company's recent second-quarter earnings report. While the results beat Wall Street's expectations, management's full-year guidance unsettled investors. The company projected that revenue would be flat year-over-year, and that a key earnings metric would fall by 11%. This outlook suggested that Lamb Weston was sacrificing profitability to maintain market share in a highly competitive environment.
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What Is The Market Telling Us
Lamb Weston’s shares are somewhat volatile and have had 10 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 3 days ago when the stock dropped 24.1% on the news that its fourth-quarter results beat expectations but its full-year outlook fell short of analyst forecasts, raising concerns about future profitability.
For the quarter, revenue grew 1.1% year on year to $1.62 billion, and adjusted earnings per share came in at $0.69, both topping estimates. While sales volumes increased by a strong 8% year on year, the gain was largely offset by weaker pricing.
The primary driver for the stock's sharp decline appeared to be the company's guidance. Lamb Weston reconfirmed its full-year forecast, with the midpoints for both its projected revenue and EBITDA (a key measure of profitability) landing below what Wall Street had anticipated, disappointing investors and signaling a challenging road ahead.
Lamb Weston is down 35.1% since the beginning of the year, and at $42.83 per share, it is trading 36.1% below its 52-week high of $67 from December 2024. Investors who bought $1,000 worth of Lamb Weston’s shares 5 years ago would now be looking at an investment worth $553.80.
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