According to a 13G filed with the SEC, Citadel Investment Group owned 1.2 million shares of The WhiteWave Foods Co (NYSE:WWAV), giving it 5.4% of the outstanding shares of the company. Citadel is managed by billionaire Ken Griffin. WhiteWave, a recent spinout of Dean Foods Company (NYSE:DF), sells plant-based and organic dairy products. The company was spun out in late October, and is down 10% since that time; since Citadel’s most recent 13F filing was in September (see Griffin’s favorite stocks), before WhiteWave became a separate company, we don’t know when it started buying shares.
The WhiteWave Foods Co has stated its financial results as if it were a separate company for the third quarter of 2012, the first nine months of 2012, and the comparable periods in 2011. Of course, it’s possible that there have been errors or judgment calls in the presentation of these financials, and we would be wary of placing too much emphasis on them. Net revenue was reportedly up 13% last quarter versus a year earlier, carrying net income (ignoring a non-controlling interest from last year) 44% higher. The growth rates are similar for the nine-month period. Nearly all of WhiteWave’s growth came from North American operations, with the smaller European business struggling.
Wall Street analysts expect 60 cents per share of earnings in 2012, and then moderate growth next year resulting in a forward P/E multiple of 22. The high growth in alternative dairy products (such as soy or coconut milk) and organic dairy products was part of the logic behind spinning out The WhiteWave Foods Co from the more ordinary Dean Foods. In addition, the spinout should leave management better able to focus on the company’s products (read more about spinouts and why hedge funds like to invest in them). However, the most recent data shows that 13% of the outstanding shares are held short. The earnings multiple does look high, and while we would expect growth at the company we are skeptical of the accuracy of the financials and worry that the market may be depending too much on operational improvements. We expect that we will know more once WhiteWave releases results for the fourth quarter, during most of which it was an independent company.
Dean, as a dairy focused company, is in fact one of WhiteWave’s closest peers. The forward P/E there is only 14, though as we’ve noted it provides more generic dairy products and so we’d expect lower margins and less growth. Still, with the lower valuation it may be worth considering and of course its management should also be able to better focus on core operations with WhiteWave’s products out of the company.
We can also compare WhiteWave to other food companies including General Mills, Inc. (NYSE:GIS), Mead Johnson Nutrition CO (NYSE:MJN), and Mondelez International Inc (NASDAQ:MDLZ). Mead Johnson, which provides infant formula and children’s nutrition products, was the most popular food stock among hedge funds during the third quarter; General Mills made the top ten list as well (see the rest of the most popular food stocks). Mead Johnson’s revenue and earnings were slightly down last quarter versus a year earlier, however, and its trailing P/E is 24. As a result we don’t think that it’s a good buy at all. General Mills has multiples in the teens, and while we wouldn’t expect much growth at the company it stands out as extremely defensive: the stock’s beta is 0.0 and the dividend yield, at current prices, is 3.2%. Revenue was in fact up 5% in the third quarter compared to the same period in 2011 (net income was up strongly, but that was likely anomalous) and it might be worth considering as a value stock. Mondelez carries a forward P/E of 16; it too is spinout related as it changed its name from Kraft to Mondelez following the spinout of Kraft Foods Group Inc (NASDAQ:KRFT).
WhiteWave doesn’t look like a good buy right now. It’s possible that the company will look interesting following a quarter or two as a separate company, but at the moment is seems that the market is too confident in continued high earnings growth.
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