Why Dean Foods Might Be a Tasty Opportunity

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While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Dean Foods climbed 2% today after BMO Capital Markets upgraded the milk company from market perform to outperform.

So what: Along with the upgrade, analyst Amit Sharma raised his price target to $23 (from $22), representing about 20% worth of upside to Friday's close. While momentum traders might be turned off by the stock's steady decline since early August, Sharma believes it provides patient investors with a solid entry point given the numerous positive trends working in Dean Foods' favor.

Now what: BMO now expects Dean to earn $1.33 per share in 2014 and $1.56 in 2015.

"First, rising global milk supplies signal that Dean's raw milk costs will peak in November. ... Second, DF's milk volumes should bottom out in the current quarter and improve sequentially ... . Third, stable milk spread and accelerating cost savings likely will raise DF's operating profits to $0.14-$0.16 per gallon levels. ... Fourth, the successful, tax-efficient divestiture of non-fluid milk assets has materially lowered leverage and should lead to other value-creating actions, attracting a new investor base," wrote BMO.

More important, with the stock still off nearly 20% from its 52-week highs and trading at a price-to-sales of 0.2, Dean Foods investors should have plenty of room to benefit from that improvement. 

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The article Why Dean Foods Might Be a Tasty Opportunity originally appeared on Fool.com.

Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool owns shares of Dean Foods. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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