No-Moat Treehouse Foods Offers Insight on Potential Sale; Shares Remain a Bargain

No-moat Treehouse Foods gave an update on its strategic review process, announcing that management is no longer pursuing an outright sale of the company, as it has determined that the current market environment is not conducive to a transaction. We agree, as we contend that a proper valuation would be difficult to garner considering the headwinds surrounding the company, headlined by the change in consumer preference away from private label toward branded products, which has been in place since the onset of the pandemic. Further, private-label brands do not carry brand equity, underpinning our no-moat rating for Treehouse. This lack of brand affinity has made it difficult for the company to pass through inflation to the consumer, as its 2021 gross margin declined to 16.1% from 18.4% in 2020.