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Why Avon Products, Pearson, and Treehouse Foods Jumped Today

By Dan Caplinger – Jan 21, 2016 at 6:09PM

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A solid bounce for the stock market was fueled in part by these winners. Find out why.

Image source: Avon Products.

The stock market finally managed to give investors a break from the big declines that have plagued them throughout the year, regaining some of the ground it lost earlier in the week. The Dow and S&P each climbed roughly 0.5% to 0.75%, as a partial stabilization in the energy markets provided at least a temporary reprieve for hard-hit investors in the sector. Although many of the stocks that climbed the most on Thursday were related to the energy industry, there were also other winners on the day. Among them were Avon Products (AVP), Pearson (PSO 0.17%), and TreeHouse Foods (THS 0.16%).

Avon Products gained 8% on news coming out of its investor-day presentations. The company began the day by announcing that it expects its full-year results to be in line with its most recent guidance, and the stock initially fell on that news. Later in the day, the stock turned higher when investor Cerberus Capital Management said the company was substantially undervalued. With Cerberus having taken a 17% stake in Avon, the private equity company is clearly talking its book. But many Avon investors think an eventual full takeover from Cerberus might be its long-term exit strategy, so if Cerberus thinks the stock has further to run, it increases the odds of a going-private transaction at a premium to the stock's current price.

Pearson soared 16% after the publisher announced a plan to reorganize its operations to create new earnings growth. The plan includes cutting 4,000 jobs, or about 10% of Pearson's current workforce, with an estimated timeframe of mid-2016 to have most of the cuts complete. Pearson hopes to save about 350 million British pounds annually as a result of the moves. The company has suffered due to falling college enrollment and reduced purchases of classroom textbooks, so many investors have known that some drastic strategic move was necessary in order to preserve opportunities for future growth. Pearson said it would also maintain its current dividend during the reorganization process, quelling fears that the earnings declines the company has seen could lead to a payout cut.

Finally, TreeHouse Foods gained 10%. The company successfully sold 11.5 million shares in a secondary offering priced at $65 per share, raising more than $700 million to help fund its acquisition of ConAgra's private brands business. The $2.7 billion deal announced last November allows ConAgra to focus more on its consumer-foods business, but it will make TreeHouse a huge player in the store-brand business. ConAgra has had trouble getting the results it wanted from the private-label business, but the increased scale TreeHouse will have could give it a key competitive edge after the deal is completed. Given that grocery chains have worked hard to capture as much in margins as possible by using store brands over third-party name-brand merchandise, TreeHouse could find itself in the right place at the right time to serve its food-retail customers more effectively.

Dan Caplinger 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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Stocks Mentioned

Avon Products Stock Quote
Avon Products
TreeHouse Foods Stock Quote
TreeHouse Foods
$49.01 (0.16%) $0.08
Pearson Stock Quote
$11.78 (0.17%) $0.02

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