Why Dean Foods Might Be a Tasty Opportunity

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Dean Foods (NYSE: DF  ) climbed 2% today after BMO Capital Markets upgraded the milk company from market perform to outperform.

So what: Along with the upgrade, analyst Amit Sharma raised his price target to $23 (from $22), representing about 20% worth of upside to Friday's close. While momentum traders might be turned off by the stock's steady decline since early August, Sharma believes it provides patient investors with a solid entry point given the numerous positive trends working in Dean Foods' favor.

Now what: BMO now expects Dean to earn $1.33 per share in 2014 and $1.56 in 2015.

"First, rising global milk supplies signal that Dean's raw milk costs will peak in November. ... Second, DF's milk volumes should bottom out in the current quarter and improve sequentially ... . Third, stable milk spread and accelerating cost savings likely will raise DF's operating profits to $0.14-$0.16 per gallon levels. ... Fourth, the successful, tax-efficient divestiture of non-fluid milk assets has materially lowered leverage and should lead to other value-creating actions, attracting a new investor base," wrote BMO.

More important, with the stock still off nearly 20% from its 52-week highs and trading at a price-to-sales of 0.2, Dean Foods investors should have plenty of room to benefit from that improvement. 

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