Some of Mead’s best growth prospects remain in emerging markets, including Asia and Latin America. By 2014, Latin America and Asia are expected to account for 60% of revenue. These markets should be lifted by rising incomes and expanding economies. The key hesitation for investing in Mead is its valuation, as the stock trades at 28 times earnings and more than 4 times sales. Mead Johnson Nutrition CO (NYSE:MJN) does have impressive hedge fund interest, with billionaires Stephen Mandel of Lone Pine Capital and Ken Griffin of Citadel Investment Group being two of the nutrition company’s top shareholders (check out Mandel’s top picks).
General Mills, Inc. (NYSE:GIS) has diverse portfolio of products, namely in the healthy and convenience-packages sector. Health and nutrition are a key focus of the company, where these product types make up some 70% of its U.S. retail volume. General Mills is also looking to focus on the faster-growing food markets outside of the U.S. For fiscal 2012, 30% of revenue was generated outside the U.S. and over the last five years, General Mills has grown international sales at a high single-digit compound rate
By the numbers
Let’s see how Dean and WhiteWave shape up from a valuation standpoint.
| Forward P/E | 5-Yr. Expected EPS Growth | PEG Ratio | |
| Dean Foods | 14.8 | 14% | 1.1 |
| WhiteWave | 22.3 | 18% | 1.3 |
| Mead Johnson | 22.9 | 11% | 2.1 |
| General Mills | 16.7 | 8% | 2.2 |
The WhiteWave Foods Co (NYSE:WWAV) appears to be near the high end of the industry on a forward P/E basis. However, its expected growth doesn’t really justify such a premium valuation. Dean Foods Co (NYSE:DF)’s lower P/E and reasonable EPS growth puts its PEG lower than WhiteWave, and suggest that Dean Foods might be a better buy.
Digging a bit deeper, we see that Dean Foods also has an ROE that’s nearly three times WhiteWave’s.
| Return on Equity | |
| Dean Foods | 28% |
| WhiteWave | 11% |
Bottom line
Overall, the fact that Dean Foods Co (NYSE:DF) has shed some non-core assets should help the company trade at a higher multiple in the future as the market recognizes the cost benefits. The company has room to grow internationally, and is also better positioned from a valuation and return on equity standpoint than its The WhiteWave Foods Co (NYSE:WWAV) spin-off. As well, Mead Johnson appears to be a bit expensive, while General Mills has below average EPS-growth prospects, so I’d avoid those two as well.
Marshall Hargrave has no position in any stocks mentioned. The Motley Fool owns shares of Dean Foods Company and WhiteWave Foods. Marshall is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Feast on This Food Company or the Leftovers? originally appeared on Fool.com and is written by Marshall Hargrave.
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