Summary
DF fell sharply after Q2 and now trades just above its 52-week low.
The fundamental business issues that have plagued the company in recent years continue to persist and show no signs of easing up.
Too much hinges on management executing the cost productivity plan to perfection. But there is very little room for error and a lot of things that could go wrong.
Even at this cyclically low valuation, an investment isn't worth the risk.
Dean Foods (DF) fell sharply after the company reported Q2 results, and the stock now sits just above its 52-week low. At a P/CF multiple of 3.7x (dividend yield of 4.7%), DF is trading at a cyclically low valuation, and I can see how some people might consider it as a possible contrarian play. There are two key issues to consider here: 1) the safety of the dividend and 2) the likelihood that volumes will start growing again. If you believe the dividend is safe and/or that volumes will recover, then an investment at the current valuation makes sense. Unfortunately, the outlook hasn’t improved in either of these areas, and it seems like too much relies on management executing perfectly.
