Friday, November 13, 2009

Ralcorp's stumble provides an attractive entry point (RAH)

This is a stock I've watched for a while, but never felt that the upside warranted purchase.

Due to weaker-than expected fourth quarter earnings, Ralcorp (RAH) is on sale. The stock is off 16% from recent highs and has underperformed the S&P500 by a full 20% in the last two months.

Ralcorp is a leader in the rapidly expanding "store-brand" category, exemplified below with a Safeway brand example:


Recent results missed expectations, and management didn't have a good excuse. However, as they digest the Post Foods acquisition, I'm confident that we will see some upside operating leverage as they cut costs and integrate the new division. After the stock drop, I finally like where the stock is now. Its 11% Free Cash Flow Yield is far too high. With a more appropriate 8% yield, the stock would trade in the high 70's.



Copyright 2009 AlphaNinja

1 comment:

  1. kind of wonders about the credibility of this information as Ralcorp doesn't sell mararoni and cheese. Where did that graphic come from?

    ReplyDelete