Dean Foods ($DF) – Stock Pick for 6/17/14

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It’s summer, and when it’s hot you might be thinking about some ice cream to help cool you off. Well look no further than Dean Foods ($DF).

Dean Foods Company, a food and beverage company, processes and distributes milk and other fluid dairy products in the United States. It manufactures, markets, and distributes dairy case products, including fluid milk, ice cream, cultured dairy products, creamers, ice cream mix, and other dairy products; and produces and distributes juices, teas, and bottled water. The company offers its products under approximately 50 local and regional proprietary or licensed brands and private labels, such as the TruMoo, Alta Dena, Berkeley Farms, Country Fresh, Dean’s, Garelick Farms, LAND O LAKES, Lehigh Valley Dairy Farms, Mayfield, McArthur, Meadow Gold, Oak Farms, PET, T.G.Lee, Tuscan, and others.

This stock has showed up on the analyst radar recently. Rating an upgrade in price target from KeyBanc and reiterating their buy rating. Then Trade-Ideas LLC identified Dean Foods as what they call a “storm the castle” stock after it crossed above the 200-day simple moving average on higher than normal relative volume recently.

KeyBanc increased its price target on Dean Foods as the firm, after speaking with a commodities expert, is more confident that the company will benefit from lower raw milk prices. The firm continues to believe that the company is an attractive takeover target with their portfolio of products and discounted share price. They have raised the price target to $22 from their previous $18.

Trade-Ideas LLC, as mentioned before, identified Dean Foods as a “Storm the Castle” (crossing above the 200-day simple moving average on higher than normal relative volume) stock candidate. On top of specific proprietary factors, Trade-Ideas identified Dean Foods as such a stock due to the following factors:

• DF has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $50.1 million.
• DF has traded 1.5 million shares at the time of their analysis.
• DF is trading at 1.86 times the normal volume for the stock at this time of day.
• DF crossed above its 200-day simple moving average.

“Storm the Castle” stocks are worth watching because trading stocks that begin to experience a breakout can lead to potentially massive profits. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock is then free to find new buyers and momentum traders who can ultimately push the stock significantly higher. Regardless of the impetus behind the price and volume action, when a stock moves with strength and volume it can indicate the start of a new trend on which early investors can capitalize on. In the event of a well-timed trading opportunity, combining technical indicators with fundamental trends and a disciplined trading methodology should help you take the first steps towards investment success.

Then from the last earnings call, the following was reported:

The company’s current return on equity greatly increased when compared to its ROE (Return on Equity) from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Food Products industry and the overall market, Dean Foods return on equity significantly exceeds that of both the industry average and the S&P 500.

Dean Foods reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. During the past fiscal year, Dean Foods increased its bottom line by earning $3.39 versus $0.26 in the prior year.

From the look of things, there seems to be a good deal positive. Currently the price is $18.15. If KeyBanc is correct in their target price, that represents a 21% increase from where it is today. Current options trading suggests the market is looking for a price in the next month to rise to around $19.20 which would be an almost 6% gain from the current price. Then you have a dividend that is yielding 1.6% currently which will give you a bit of income in the process.

If Dean Foods can continue to post positive earnings per share growth and raw milk prices continue to improve, then I think they will have the opportunity to meet the analyst price targets. It will make that ice cream taste much sweeter in the hot summer sun.