Pinnacle Foods – What Do Pickles and Pancakes Tell Us About Consumer Staples?

Pinnacle Foods has traded from an IPO price of $20 per share to over $24 in under a week.  What does that tell us?


Priced Right


The deal was priced “right” – at a discount to the group in terms of EV/EBITDA – that gap has now narrowed, with PF trading at 10.6x EV/EBITDA (our estimate of EBITDA of $450 million).  The packaged food average is 11.4x and the large cap packaged food average is 10.7x.  Based on the company’s growth profile (or lack thereof) we think it should trade closer to the large cap number, but we also recognize that reasoned views of valuation are largely meaningless in staples these days.


Scarcity Value


Though we mentioned it in our prior note, we apparently underestimated the scarcity value of a relatively high yielding asset in the small–mid cap space.  We have spoken with more than a couple of people that have capital that needs to be deployed and are faced with limited alternatives in the sector.  This probably also serves as at least a partial explanation for MKC’s performance in the wake of, at best, a mediocre quarter and guide.

Yield is a Driver


With today’s move above $24 per share, the yield with the proposed dividend is now below 3.00% (2.96%) versus the yield at the IPO price of 3.60%.  For reference, SJM (2.10%), MKC (1.86%), CHD (1.73%), ENR (1.61%) and HRL (1.65%) are the relevant peer group in terms of yield, suggesting further upside to the extent that the performance of PF is related to a paucity of yield in that cap segment of staples.


High Debt/EBITDA Has Outperformed


Companies with higher debt/EBITDA ratios have outperformed in the staples sector since the beginning of February, and PF is at the higher end of the staples range with a debt/EBITDA ratio of 4.2x.  The market seems to have embraced deleveraging stories (or lower “quality” assets).


Pinnacle Foods – What Do Pickles and Pancakes Tell Us About Consumer Staples? - Debt to EBITDA


What Have We Learned?

  1. Don’t fight money flows
  2. Yield still matters
  3. Valuation matters, but only when there is a discount (warranted or otherwise) to be exploited
  4. Crap is still beating quality

To be honest, we kind of knew all those things, but we appreciate the proof of concept.


Call with questions,




Robert  Campagnino

Managing Director





Matt Hedrick

Senior Analyst

Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more

6 Charts: The French Election, Nasdaq All-Time Highs & An Earnings Scorecard

We've been telling investors for some time that global growth is picking up, get long stocks.

read more

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more

Europe's Battles Against Apple, Google, Innovation & Jobs

"“I am very concerned the E.U. maintains a battle against the American giants while doing everything possible to sustain so-called national champions," writes economist Daniel Lacalle. "Attacking innovation doesn’t create jobs.”

read more

An Open Letter to Pandora Management...

"Please stop leaking information to the press," writes Hedgeye Internet & Media analyst Hesham Shaaban. "You are getting in your own way, and blowing up your shareholders in the process."

read more