Sara Lee Gaining Traction

The five-year Transformation Plan should benefit Sara Lee Corporation (SLE - Analyst Report) in the long term even though the project provided little earnings visibility over the first two years. The company is now in the third year of the plan and the brand-building process is proving to be successful.

With the growing popularity of healthier snacking, Sara Lee has developed new products to exploit the trend, including Hillshire Farms Entrée Salads, flour-blend breakfast breads and whole grain white bread. The company’s operating margin is beginning to expand and quarterly earnings comparisons are expected to be positive going forward. Hence, the Buy recommendation is maintained.

Sara Lee stock traded in a P/E multiple range of 11 to 18 during the five years prior to the current restructuring program. The current trailing 12-month P/E of 14.3 is at the middle of the range due to the decline in earnings during the initial phase of the company’s Transformation Plan.

For food companies experiencing restructuring changes, the Price-to-Sales (P/S) metric is appropriate. The stock is currently selling at a P/S multiple of 0.68 times trailing 12-month sales. The target price of $18.50 is based on a 1.00 P/S valuation on trailing 12-month sales.

Read the full analyst report on SLE