Lamb Weston: Market Undervalues Low-Cost Supply, Sticky Restaurant Relationships, and Robust Growth

We’ve raised our fair value estimate for Lamb Weston to $117 per share from $74, after updating our forecasts for higher volume growth (about 200 basis points more per year to 4.5%) and revisiting our cost of equity assumption (down to 7% from 9.5%, which is more in line with most food producers). Shares traded near our fair value estimate as recently as May, and we think the market now undervalues its long-term growth potential while overvaluing cost and crop volatility.