October 2, 2023

Insiders And Institutions Signal A Change In Trend For Lamb Weston

Insiders And Institutions Signal A Change In Trend For Lamb Weston

Foodservice Rebound Drives Lamb Weston Higher 

We were expecting to see some fairly strong results from Lamb Weston (NASDAQ: LW) and we were not disappointed. The company is being supported by a robust rebound in the foodservice channel that is coupled with pricing increases and driving results above consensus. This, on top of the trends in insider and institutional activity, is signaling a change in the trend that we see driving this stock higher over the next 12 months. We are also expecting to see some volatility in the recovery due to Omicron so there may be a better time to buy than right now. 

Insiders And Institutions Buy Lamb Weston In H2 2021

Institutional and insider activity in shares of Lamb Weston has been mixed over the past 12 months but there are some clear trends supporting the price action. In regards to the insiders, there were some insider sales in the first half of the year and they abruptly ceased. Sales were made by execs and timed to coincide with the spring 2021 highs when share prices were at the highest levels since the pandemic began. Their activity ended well before the stock began to sell off and has since been replaced by buying. Three directors in three separately timed transactions purchased 9,651 shares in the late Q3 and early Q4 period. The purchases are a very small percentage of 1% of the total shares but a vote of confidence in the company nonetheless. 

As for the institutions, institutional activity smacks of rotation in the stock but is net bullish for the year. While selling outpaced buying in the first half, that trend ended in the second half when buying activity began to pick up. Institutional buying peaked in Q4 when price action pulled back to the lowest levels since the pandemic began. In total, the balance of activity is worth about 5% of the market cap with shares trading near $68 in the second half with net buying for the year equal to about 2.7% of the market cap.

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Lamb Weston Has Strong Q2, Guides Higher 

Lamb Weston had a strong Q2 reporting $1.01 billion in net revenue. This is up 12.7% from last year and beat the consensus by 100 basis points but is only flat compared to the same time period in 2019. The gain is driven by a 6% increase in volume coupled with a 6% increase in price/mix that is largely attributed to price rather than mix. On a segment basis, the Foodservice segment led with a gain of 30% and was followed by a 19% increase in Global and a 1% increase in Retail. Retail sales, notably, fell in terms of volume but pricing offset the difference. 

Moving down the report, the company experienced a sharp contraction in margin due to rising potato costs, freight, and labor that left the income from operations down 18% and net income down 66%. The good news is that pricing is offsetting cost increases to some extent and resulted in better than expected adjusted earnings. The GAAP earnings of $0.22 missed the consensus by $0.12 but there is a one-off factor in the form of charges related to the early extinguishment of debt. On an adjusted basis, the $0.50 in EPS is down 24% YOY but beat the consensus by $0.18.

The Technical Outlook: Lamb Weston Popped On Guidance 

Lamb Weston popped in the wake of the FQ2 earnings report due to guidance more than anything else. The company upped its guidance to “above” the mid-single-digit long-term target which compares semi-favorably to the consensus of 10.5%. Regardless, the price action gapped up and closed with a gain near 7.5% and looks ready to move higher. Near-term price action may see prices fall before moving higher with resistance at the $72 level the next hurdle. Strong support is likely to be found in the range of $64 to $68. 

Insiders And Institutions Signal A Change In Trend For Lamb Weston

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