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Diamond Foods, Inc. (NASDAQ:DMND) has been a fascinating stock story over the past few years. This company makes a number of well-known snack products including chips, nuts, popcorn, etc. This company was experiencing rapid growth thanks to the popularity of its products. Diamond Foods owns "Kettle" brand potato chips and it recently introduced "Tias" which is an all natural tortilla chip with salsa picante. The Kettle brand also offers organic peanut butter, hazelnut butter, cashew butter, and almond butter. It owns Emerald Nuts which is a leading brand of nuts and trail mixes, Pop Secret popcorn, and Diamond Culinary Nuts which are popular for use in cooking.

In early 2012, Diamond offered to buy the Pringles Chips brand from Procter & Gamble (NYSE:PG), but that deal fell apart due in part to news that Diamond would have to restate earnings. That announcement led to a management shuffle and helped to drive what had been a nearly $100 stock down to current levels at just about $15 per share. The investigation into the earnings issues and payments to walnut growers has taken time and attracted many shorts. It appears clear that former management made some mistakes, but it also appears clear that this company owns some very valuable food brands which continue to be popular and steady-sellers. The stock has lost a considerable amount of value off its peak levels and it is surely seeing some tax-loss selling.

After the company finally announced the restatement, the stock dropped as some investors were disappointed that about $56.5 million in profits were erased in the two years that were impacted by the restatement. However, the initial market reaction to sell the stock could be reversed in the coming days as investors digest this news. The restatement could have been much worse and it is a very positive development because it means the company can finally file financials with the SEC and become fully compliant. The clearing of this issue takes the worst-case scenarios off the table. It also allows the company to more easily access financing now that the cloud of the restatement issue is lifting. The biggest positive is that the company could also move forward with creating shareholder value and one of the best ways to do that is by selling off some or all of the very valuable brands that Diamond owns.

This company became what it is today by making acquisitions, but the tables might turn and it could end up seeing takeover interest by a number of major snack and food companies. Pepsi (NYSE:PEP) has been highly acquisitive in the past. It is a leader in the snack food business and the Kettle chips brand could be an ideal target. Pepsi owns brands like Lay's and Ruffles potato chips, Doritos tortilla chips, Tostitos tortilla chips and dips, Cheetos snacks, Fritos corn chips, Rold Gold pretzels, and many others. The Emerald nuts division could also see strong interest from a range of companies. Companies that were waiting on the sidelines for the restatement announcement might now be ready to buy Diamond or carve out certain divisions.

With the restatement news out, plenty of upside remains, and it seems clear that this heavily shorted stock will live to fight another day. What is left now are some very valuable brands and millions of shares that are still short. According to Shortsqueeze.com, about 7.7 million shares are currently short. With around 170,000 shares trading on an average day, it could take shorts about 45 days to cover. That's a lot of potential buying that could be put into play as investors focus on the clarity and deal-making potential this restatement brings.

Here are some key points for DMND:
Current share price: $15.44
The 52 week range is $14.50 to $40.71
Earnings estimates for 2012: $1.27 per share
Earnings estimates for 2013: $1.37 per share
Annual dividend: none

Here are some key points for PEP:
Current share price: $67.94
The 52 week range is $62.15 to $73.66
Earnings estimates for 2012: $4.06 per share
Earnings estimates for 2013: $4.41 per share
Annual dividend: $2.15 per share which yields about 3.1%

Data is sourced from Yahoo Finance. No guarantees or representations
are made. Hawkinvest is not a registered investment advisor and does
not provide specific investment advice. The information is for
informational purposes only. You should always consult a financial
advisor.

Source: Diamond's Restatement Opens The Door To Many Options, Including A Buyout