Dean Foods: What did Santa wash down his cookies with?

unknown-4Dear Mr. Market:

Normally we write you a series of letters about the stock market or the economy. As we wrap up 2016, however, we decided to share an article that was recently published on Seeking Alpha. The proverbial ‘Santa Claus rally’ seems to perhaps have taken place before Christmas this year but what opportunities might there be going into 2017?

This interview reviews questions around a stock we’re interested in adding to some portfolios; Dean Foods (DF). Enjoy!

Summary

  • Despite trading at 52-week highs (and ~30% gain over the last three months), DF is still undervalued relative to peers.
  • As the clear market leader in fluid dairy, DF enjoys significant economies of scale – a critical advantage in a commodity-related business.
  • “Skating to wear the puck is going” with leading position in healthy dairy products such as TruMoo.
  • Friendly’s ice cream acquisition was immediately accretive, highly complementary, and further cemented its growing position in branded ice cream.
  • Takeover rumors that surfaced in October provide a floor for the stock.

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