Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Has Dean Foods Co (DF) Become the Perfect Stock?

Page 1 of 2

A 9% Yield From a "Strange" MLPEvery investor would love to stumble upon the perfect stock. But will you ever really find a stock that provides everything you could possibly want?

One thing’s for sure: You’ll never discover truly great investments unless you actively look for them. Let’s discuss the ideal qualities of a perfect stock, then decide if Dean Foods Co (NYSE:DF) fits the bill.

The quest for perfection
Stocks that look great based on one factor may prove horrible elsewhere, making due diligence a crucial part of your investing research. The best stocks excel in many different areas, including these important factors:

  • Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it’s certainly a better sign than a stagnant top line.
  • Margins. Higher sales mean nothing if a company can’t produce profits from them. Strong margins ensure that company can turn revenue into profit.
  • Balance sheet. At debt-laden companies, banks and bondholders compete with shareholders for management’s attention. Companies with strong balance sheets don’t have to worry about the distraction of debt.
  • Money-making opportunities. Return on equity helps measure how well a company is finding opportunities to turn its resources into profitable business endeavors.
  • Valuation. You can’t afford to pay too much for even the best companies. By using normalized figures, you can see how a stock’s simple earnings multiple fits into a longer-term context.
  • Dividends. For tangible proof of profits, a check to shareholders every three months can’t be beat. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.

With those factors in mind, let’s take a closer look at Dean Foods.

Factor What We Want to See Actual Pass or Fail?
Growth 5-year annual revenue growth > 15% (0.6%) Fail
1-year revenue growth > 12% (1.5%)* Fail
Margins Gross margin > 35% 25.4% Fail
Net margin > 15% 1.5% Fail
Balance sheet Debt to equity < 50% 664.5% Fail
Current ratio > 1.3 1.67 Pass
Opportunities Return on equity > 15% 68.6% Pass
Valuation Normalized P/E < 20 18.70 Pass
Dividends Current yield > 2% 0% Fail
5-year dividend growth > 10% 0% Fail
Total score 3 out of 10

Source: S&P Capital IQ. Total score = number of passes. * Adjusted to reflect WhiteWave IPO.

Since we looked at Dean Foods last year, the company has picked up a point, with return on equity rebounding sharply. The stock has seen great performance as well, climbing more than 35% over the past year.

Facing a huge debt load, Dean Foods Co has made some big strategic moves recently to try to shore up its balance sheet. By making an initial public offering of a stake in its The WhiteWave Foods Co (NYSE:WWAV) organic foods division in October, Dean took advantage of the segment’s high growth rate and set the stage for a full spinoff of Dean’s remaining 80% stake in WhiteWave. Then, in December, Dean sold off its Morningstar Foods business for $1.45 billion to Canada’s Saputo. The proceeds from these transactions will help Dean pay down its borrowings from their lofty levels.

Page 1 of 2
Loading Comments...