Maple Leaf Foods Upgraded Ahead of Earnings - TD Newcrest

| About: Maple Leaf (MLFNF)

Maple Leaf Foods Inc. (OTCPK:MLFNF) was upgraded to Buy from Hold at TD Newcrest on Wednesday, ahead of its second quarter results due on July 29. Analyst Michael Van Aelst told clients that his more bullish view is the result of a 25% pullback in the share price since he downgraded it to Hold on Dec. 19, 2008.

He said:

Even if a full profit recovery is only expected to occur gradually, the return to positive year-over-year earnings momentum and stronger earnings per share run rates should produce decent upside over the next 12-18 months.

His price target of C$12 per share represents upside of roughly 50% to Maple Leaf’s recent trading range around C$8, although it was a big participant in the market’s rally on Wednesday. The analyst said this target more than compensates for the higher risk levels following last year’s listeria outbreak.

Mr. Van Aelst is forecasting adjusted EPS of C$0.09 versus a penny loss a year ago. The consensus estimate is C$0.07. The analyst has estimated the negative financial impact of the indirect product recall costs to be as much as C$.10 per share for the second quarter.

Canada Bread Co, which Maple Leaf owns roughly 90% of, is now trading at just 5x forward EBITDA, which the analyst noted its the lowest among its peers “despite having most of its operations in a relatively stable duopoly.”

Meanwhile, the meat products group has seen its volumes fully recover after the listeria recall, according to Mr. Van Aelst, who expects pricing power to follow suit during the next six to 12 months.