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Why Dean Foods Co's Shares Popped 11% in October

By Travis Hoium – Nov 7, 2016 at 4:50PM

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Could a buyout be on the horizon for this dairy giant?


Image source: Getty Images.

What happened 

Shares of dairy company Dean Foods Co (DF) rose 11.3% in October, according to data provided by S&P Global Market Intelligence, with speculation swirling that the company could be acquired. 

So what 

The Financial Times first reported that Hongsheng Beverage, a subsidiary of Hangzhou Wahaha Group, is looking into a buyout offer for Dean Foods. The dairy business has struggled recently because of low prices and heavy competition, leading to a shift toward consolidation -- and given Dean Foods' current P/E ratio of 15, it could be a good value for any buyer.

Now what 

This is currently just a speculative move in the stock; we don't know if Hongsheng Beverage will make an offer for the company. And even if it does, there's no guarantee it would be accepted or approved by regulators. Long term, Foolish investors will likely not find it worthwhile to buy the stock at this juncture, but it'll be a factor worth watching, along with earnings momentum in coming quarters. Margins are starting to expand in the core business, and that could lead to earnings growth even if revenue growth remains flat. Organic bottom line improvement is a better reason to own the stock than speculation of a buyout.  

Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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