Factors That Made TreeHouse Foods (THS) A Touch-Me-Not Stock

Have you offloaded Treehouse Foods, Inc. (NYSE:THS) stock from your portfolio? If not, then you must take the required action as the stock is no more worth holding now. This Zacks Rank #5 (Strong Sell) stock has declined 19.3% in the past one year underperforming both the Zacks categorized Food – Miscellaneous/Diversified industry and the broader sector.

The industry fell 4.1% and is currently placed at bottom 30% (178 out of 256) of the Zacks Classified industries. On the contrary, the Zacks categorized Consumer Staples sector gained 3% and is placed in the top 50% (8 out of 16) of the Zacks Classified sectors. Further, TreeHouse Foods has a Momentum Score of ‘D’, which adds to the looming concerns.

Reasons Behind Dismal Performance

Estimates have fallen drastically after TreeHouse Foods posted lower-than-expected first-quarter 2017 results and issued bleak outlook for the second quarter. Results were hurt by the unfavorable pricing and build-out of the company’s new segment structure. Evidently, the Zacks Consensus Estimate of $3.47 and $4.53 for 2017 and 2018, declined 15 cents and 30 cents, respectively, over the past 30 days. However, management expects earnings per share in the band of $3.50–$3.70 for 2017.

In addition, the Zacks Consensus Estimate for the second quarter was down from 72 cents to 49 cents in the said time frame and is within the company's guided range of 45–55 cents. In fact, the second quarter is expected to be the lowest quarter in 2017 with respect to earnings. Additionally, management expects a soft retail landscape to persist in the same period.

Recently, TreeHouse Foods closed its two facilities that were announced earlier. Further, management declared the divestment of its structurally challenged Soup and Infant Feeding business to Insight Equity. This deal is anticipated to conclude in the second or third quarter of 2017.

Notably, changing customer buying patterns along with currency headwinds remain concerns. Moreover, higher operating costs owing to acquisitions hurt its performance. Also, its sales missed the Zacks Consensus Estimate in eight of the past 10 quarters. Food industry is also facing weakness due to deflationary pressure.

Considering price-to-earnings (P/E) ratio, TreeHouse Foods looks pretty overvalued when compared with the industry and the S&P 500. The stock has a trailing 12-month P/E ratio of 25.37, which is still below the median level of 29.69 and the high level of 35.25 scaled in the past one year. On the contrary, the trailing 12-month P/E ratio for the industry and the S&P 500 is 21.85 and 19.97, respectively.

Key Picks

Better-ranked stock in the same industry include ARAMARK HOLDINGS CORP (NYSE:ARMK) , Conagra Brands, Inc. (NYSE:CAG) and Lamb Weston Holdings, Inc. (NYSE:LW) , all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

ARAMARK HOLDINGS, with a long-term earnings growth rate of 12.8% has posted an average beat of 4.5% in the trailing four quarters.

Conagra Brands, with a long-term earnings growth rate of 8% has posted an average beat of 10.7% in the trailing four quarters.

Lamb Weston, with a long-term earnings growth rate of 4.2% has surged 39.1% in the past one year.

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