Lamb Weston recently released its Q3’24 results, reporting lower revenue and earnings than expected. The company attributed this to the impact of transitioning to a new enterprise resource planning system. This news led to a significant drop in the stock price, over 25% in the last five days. Looking at a longer-term performance, Lamb Weston’s stock has seen little change since early 2021 compared to the S&P 500 index, which has increased by about 40% over the same period. The company underperformed the index in 2021 and 2023.
Beating the S&P 500 has been challenging for individual stocks, even for heavyweights in various sectors. However, the Trefis High Quality Portfolio, consisting of 30 stocks, has outperformed the S&P 500 consistently. The uncertain macroeconomic environment, with high oil prices and elevated interest rates, raises questions about Lamb Weston’s future performance relative to the index. From a valuation perspective, the stock appears attractive, trading at a lower multiple than its historical average.
Lamb Weston’s Q3’24 revenues increased by 16% to $1.46 billion, driven by the LW EMEA acquisition. While North American sales declined, international sales saw significant growth due to the acquisition. However, excluding LW EMEA, international sales were down, primarily due to the impact of the ERP transition. The company’s operating margin decreased to 18.0% in Q3’24, compared to 21.5% in the prior-year quarter, due to higher SG&A expenses.
The company revised its fiscal 2024 outlook, expecting revenues between $6.54 billion and $6.60 billion, and earnings per share between $5.50 and $5.65 on an adjusted basis. This is lower than its previous forecast, which projected higher sales and earnings. Despite the challenges faced in Q3, Lamb Weston believes the ERP transition issue was a one-time event and expects business to normalize going forward. The company’s nine-month sales reflect strong growth, and investors may find value in the current dip in stock price for long-term gains.
While Lamb Weston’s stock appears undervalued, it is essential to compare the company with its peers to assess its performance accurately. Investors can explore other valuable comparisons for companies across various industries to make informed decisions. Overall, Lamb Weston’s recent performance may be a bump in the road, and the company’s long-term prospects remain promising, potentially offering investors solid gains in the future.
