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TreeHouse (THS) Prospects Look Promising: Should You Hold?

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A prudent investment decision involves buying stocks that offer solid prospects and selling those that appear risky. Again, at times it is rational to hold certain stocks that have enough potential but are weighed down by tough market conditions. Here we have discussed one such stock, TreeHouse Foods, Inc. (THS - Free Report) , with expected long-term earnings per share growth rate of 15.24% and a VGM Score A.

TreeHouse’s stock price history reveals that the stock has notably outperformed the Zacks categorized Food-Miscellaneous/Diversified industry over the past three months. While the stock yielded 19.3%, the industry gained 0.48% in the said time frame. On the other hand, the broader Consumer Staple sector, of which they are part of, grew 5.54% in the same time frame. We believe that this rally has been driven by solid growth strategies and cost saving measures.

Driving Factors

The Zacks Rank #3 (Hold) company has shown an uptrend in terms of earnings, as evident from its average positive earnings surprise of 4.12% in the trailing four quarters.

We note that TreeHouse Foods reported better-than-expected fourth-quarter 2016 results, after a weak third quarter performance. Earnings increased 5.6% from the year-ago level as higher net sales were driven by volume growth in base business which more than offset the lower gross margin related to the acquisition of the Private Brands business from ConAgra Foods, Inc. (CAG - Free Report) , which has a lower margin structure than the legacy TreeHouse business. Sales surged 105.3% on the back of the acquisition of the private brands operations and favorable volume/mix, primarily in the North American Retail Grocery segment, partially offset by lower pricing.

Though the company expects the overall top-line growth for the industry to be relatively flat and expectsfood industry to face weakness in 2017 due to stiff competition, it anticipates margin improvement to persist in 2017 and 2018 as revenues from most of the Private Brands categories will begin to stabilize. It is also encouraging to note that the company is in the process of cutting down costs and improving efficiency.

Treehouse Foods, Inc. Price, Consensus and EPS Surprise

 

Treehouse Foods, Inc. Price, Consensus and EPS Surprise | Treehouse Foods, Inc. Quote

Illinois-based food company, which operates as a food and beverage manufacturer in the United States and Canada, focuses on organic foods, as consumers appear to be more interested in foods described as – better for you – which include fresh or freshly prepared foods, and natural, organic, or specialty foods. Moreover, TreeHouse Foods has witnessed positive comparable store sales growth trends in food away from home outlets, which mainly focuses on clean ingredients and labels, resulting in higher demand for natural or organic type products.

Stocks to Consider

Some better-ranked food stocks in the industry include Lamb Weston Holdings Inc. (LW - Free Report) and Ingredion, Inc. (INGR - Free Report) .

Lamb Weston has long-term earnings growth rate of 3.24% and sports a Zacks Rank #1 (Strong Buy). You can seethe complete list of today’s Zacks #1 Rank stocks here. Ingredion carries a Zacks Rank #2 (Buy) have growth rate of 11.00%.

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