Lamb Weston Boasts Solid Sales and Profit Gains, but Shares Overcooked

Narrow-moat Lamb Weston posted stellar third-quarter results, delivering sales of $1.25 billion (up 31%), which was driven entirely by price/mix as volumes held flat. The firm raised its full-year outlook to $5.25 billion-$5.35 billion in sales and $4.35-$4.50 in adjusted diluted EPS (from $4.8 billion-$4.9 billion and $3.75-$4.00, respectively), now reflecting the consolidation of the European joint venture in its fourth-quarter results (expected to contribute $300 million-$325 million in sales and $10 million-$15 million in adjusted EBITDA). We plan to edge our near-term forecasts into the guided range, which should lift our $71 fair value estimate by a mid-single-digit rate. Shares currently trade nearly 50% above our existing valuation, and as such, we’d suggest investors refrain from building a position.