Analyst starts Dean Foods with 'Hold' rating

An analyst started coverage of Dean Foods Co. with a "Hold" rating, saying that a higher stock price rightly reflects strengthening fundamentals, such as improved dairy costs for the milk processor.

Stifel Nicolaus & Co. analyst Christopher Growe said Dean, "after two tumultuous years," is poised to see lower costs, compared to 2007 and 2008.

Growe said Dean will mostly be successful in passing along price increases to help offset costs for items like resin _ a material used in plastic _ fuel and cream. A continued emphasis on cutting expenses will help as well, Growe added.

For 2009, Growe expects 30 percent earnings growth, and said "tepid" input costs may drive earnings and the stock price even higher.

Meanwhile, Growe noted slowly improving fundamentals for its Horizon Organic brand. Specifically, Growe said sales are "growing significantly," but still warned that competition remains strong.

Growe said shares have risen to a level that accurately values future growth potential. The stock has gained 40.5 percent from a 52-week low of $17.54, hit on July 11.

"We see only limited upside potential for the shares from here," Growe wrote in a note to investors.

Shares of the Dallas company declined 14 cents to $24.50 in afternoon trading.