WhiteWave Foods (NYSE:WWAV) has climbed quite nicely on the stock market since being spun off from Dean Foods (NYSE:DF). It is up from around $17.75 per share in July to $22.70 per share at the time of writing.
WhiteWave, the owner of several brands, including Silk, Horizon Organic and Alpro, has delivered quite good growth in the past three years. The company has shown its commitment to generate more growth with its recent agreement to acquire Earthbound Farm for around $600 million. Is WhiteWave a better investment opportunity than its ex-parent Dean Foods or fellow cereal maker Post Holdings (NYSE:POST)?
A good deal at a good price
Earthbound Farm is considered the largest organic produce brand in North America, with a 45% market share in organic packaged salad and a 57% market share of branded organic packaged salad. According to WhiteWave's presentation, Earthbound Farm's market share is around three times higher than that of its nearest competitor. The acquisition of Earthbound Farm will enhance WhiteWave's leadership position in the North American organic industry and extend WhiteWave's product offering into a high-growth category.
What investors might like about the deal is the fact that WhiteWave bought a leading organic produce brand, which has enjoyed good profitability, at a relatively low valuation. In 2013, Earthbound Farm expects to generate more than $500 million sales with an EBITDA margin in the low-to-mid teens. At $600 million, Earthbound Farm's EBITDA (earnings before interest, taxes, depreciation, and amortization) multiple comes in at only 7.5, much lower than WhiteWave's current EBITDA multiple of 15.1.
Post Holdings keeps acquiring smaller food businesses
In the food industry, Post Holdings is considered to be one of the most acquisitive companies. Recently, it announced plans to acquire two more companies, Canadian peanut butter manufacturer Golden Boy for $320 million and protein bar firm Dymatize for $380 million. These acquisition moves represent Post Holdings' ongoing effort to grow its active nutrition and private-label categories. While buying Golden Boy helps create the company's private-label platform, Dymatize will allow Post Holdings to target different sets of customers that include specialty U.S. stores, compared to the former Premier Nutrition business.
Cost savings will improve the profitability of both WhiteWave and Dean Foods
More shareholder value will be created by WhiteWave's ongoing effort to cut costs. In the third quarter, while its revenue jumped by 10%, the company's EPS advanced by 21% compared to the same quarter last year. For the full year, WhiteWave estimates that it will increase its 2013 operating margin by at least 50 basis points. Its operating margin might rise by 75 basis points per year for several years because of its capacity-expansion projects.
Investors should also watch WhiteWave's ex-parent Dean Foods as it could also enhance shareholders' value in the future with its cost cutting initiatives. In the past twelve months, Dean Foods has closed seven plants. The company also plans to reduce 10%-15% of its total network, equivalent to around eight to 12 plants. The plant closures will boost its operational efficiency and profitability in the near future.
For the full year, the company expects its EBITDA to come in at around $391-$400 million, with a targeted net debt to EBITDA leverage ratio of around 2. At $17 per share, Dean Foods is quite cheaply valued at only 6 times its 2013 EBITDA.
My Foolish take
All three of these food companies will deliver good growth and bring more value to their shareholders in the future. I am personally excited about WhiteWave's recent acquisition of Earthbound Farm, enhancing its leadership position in the organic industry. However, WhiteWave seems to be the most expensively valued among the three at 15.1 times its EV/EBITDA. Post Holdings' EBITDA multiple ranks second at 12.80.
Among the three, I like Dean Foods the most because of its single-digit EBITDA multiple. While Dean Foods can not grow as fast as the other two, its ongoing cost savings efforts will definitely improve its efficiency and profitability.