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Bull of the Day: Treehouse Foods (THS)

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Treehouse Foods (THS - Free Report) is a Zacks Rank #1 (Strong Buy) that is a manufacturer of packaged goods and beverages. The company has more than 50 manufacturing facilities in the U.S., Canada and Italy that service retail, industry and export customers.

The stock has not participated in the recent market rally and has been stuck in a tight range in the low $40s. Investors are no doubt getting frustrated with the stock, but after earnings were reported earlier this month, the stock is seeing estimates and the stock tick higher.

About the Company

Threehouse was founded in 1862, is headquartered in Oak Brook, IL and employs over 10,000. The company operates through three segments that include Baked Goods, Beverages, and Meal Solutions.

The current market cap is $2.5 billion and Forward PE is 17. Treehouse offers no dividend and the volatility is low, with a beta of 0.67.

Earnings

On August 6th the company reported and EPS surprise of 23%. This was the third straight beat and the tenth beat out of the last twelve earnings reports.

In addition to the bottom-line beat, Treehouse guided Q3 at $0.55-$0.65 v the $0.61 expected. This was the middle of the range and with revenues coming in below the expected number, the stock traded lower after the report.

While investors weren’t that excited about the numbers, the company raised the FY20 range to $2.55-$2.75 v the $2.59 expected. They also hiked revenue forecast.

CEO Steven Oakland had some comments on the outlook:

Our outlook for the balance of the year assumes revenue will remain strong and takes into account higher costs to implement and maintain heightened COVID-19 safety measures. While macro uncertainty remains in the second half of the year, we feel comfortable in raising our full-year adjusted EPS guidance range." 

The takeaway from the quarter is that safety measures might cause short-term costs, but they still expect to outperform previous expectations.

Estimates Rising

While investors haven’t committed to the stock, analyst are hiking estimates. For the current year, estimates have gone 3.4% higher over the last month, from $2.58 to $2.67. For 2021, estimates have seen a 4.3% hike over the same time frame.

Both current and next quarter estimates have seen ticks lower, due to the safety measures the company has to take due to COVID-19.

The Technical Take

The stock has been stuck since early July, trading in a tight range and below the 200-day MA at $46. The bulls seem to be passively buying the 61.8% Fibonacci retracement level at $41. This level is found by drawing from the March lows to May highs.

The all-time highs for the stock are $104.53, while the recent lows were $33.50. A move over $46 would be considered bullish and long-term investors could target the $58 level, with a stop at July lows.

In Summary

When stocks don’t move with the market there is a reason for concern. However, the quarter and guide from Treehouse should give investors comfort that the stock will perform better in the near future.

When a stock is stuck, its important to be patient and wait for the move higher. Traders should set alert and watch the 200-day moving average as a spot to buy if the stock starts to breakout.

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