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Diamond Foods, Inc. (DMND): This Small Cap Food Business is Still Quite Expensive

This acquisition is really a strategic addition to ConAgra’s food portfolio, creating the largest private food brand company in North America. Moreover, ConAgra could take advantage of Ralcorp’s relationship with major retailers, quick service restaurants and food distributors in North America. After the acquisition, ConAgra Foods, Inc. (NYSE:CAG) would have more balanced portfolio with 43% in Branded segment, while the Private Label and Commercial/Foodservice segments accounted for 25% and 32% of the total revenue, respectively. For the full year 2013, ConAgra expected to generate around $2.15 per share in EPS, including Ralcorp’s expected contribution.

Mondelez could be a much better buy

Mondelez International Inc (NASDAQ:MDLZ) is the global leader in several food categories including Biscuits, Powdered Beverages, Candy and Chocolate. Its main playground are emerging markets. In the first quarter 2013, Mondelez experienced double-digit growth in China, Brazil and India. However, because of the capacity constraints in some markets and expected lower coffee pricing, Mondelez estimated that its 2013 revenue growth would stay in the low end of 5%-7%. The operating EPS would be around $1.55-$1.60 per share.

Activist investor Nelson Peltz is getting more bullish on Mondelez. In the middle of May, he doubled his stake in Mondelez International Inc (NASDAQ:MDLZ), holding around 40.3 million shares in the company. As he also invested in PepsiCo, and many people speculated that he might push for the merger of PepsiCo’s Frito-Lay business and Mondelez. Indeed, if that happens, the combined business would have the most dominating global position in the world’s food industry. Mondelez, at $29.30 per share, is worth $52.30 billion. The market values Mondelez the cheapest among the three companies, at only 13.5 times EV/EBITDA.

My Foolish take

With the current loss-generating situation, a weak balance sheet and high valuation, I do not think Diamond Foods, Inc. (NASDAQ:DMND) is a good stock for investors now. I like Mondelez the most due to its global leading positions in fast-growing markets, as well as a relatively low valuation in the food industry.

The article This Small Cap Food Business is Still Quite Expensive originally appeared on Fool.com and is written by Anh Hoang.

Anh HOANG has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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