WhiteWave Foods Shares A Buy After Earthbound Farms Acqusition

| About: WhiteWave Foods (WWAV)

One of the most talked about stocks on Monday was The WhiteWave Foods Company (NYSE:WWAV). The recently spun-off high growth brands from Dean Foods (NYSE:DF) continue to take the market by storm. Monday's five percent gain and new fifty two week high came from an acquisition that should send shares higher in 2014 and prepare the company for high growth in the future.

On Monday, WhiteWave announced its acquisition of Earthbound Farms, the leading organic produce company in North America. WhiteWave is spending $600 million on the company, who is projected to hit $500 million in sales for the current calendar year. The acquisition will add $0.07 in earnings per share in its first full year.

WhiteWave got a steal on this deal in my opinion. The company is paying 1.2 times sales and 8 times estimated EBITDA for the current year. With the acquisition, WhiteWave gains a huge entry into produce, particularly packaged salad. After the close of the deal, WhiteWave will have the number one market share in organic milk, number one market share in plant based foods and beverages, number one market share in organic produce, and number two market share in coffee creamers (#1 in iced coffee) in North America.

Earthbound Farms is the undisputed leader in organic produce. The company sells over 100 products and has a strong customer base. With WhiteWave's retail presence, Earthbound should see more shelf space in big retailers and should be able to increase sales dramatically over the next five years. Earthbound Farms gets 65% of sales from packaged salad, where it dominates the market. Earthbound has a 45% market share of organic package salad, including private label. When only branded organic is counted, Earthbound controls 57% of the market, and has three times the share of its next leading competitor.

Salad continues to be one of the dominating categories for organic foods. In the United States, 21% of salad sales for 2013 will be organic. This has grown strong from 12% share back in 2008. The market share of organic salad is the highest penetrated category of all foods. WhiteWave will be happy to integrate the growing share of organic foods into its market leading positions.

Prior to the deal, WhiteWave was already seeing strong growth from its brands like: Silk, Apro, Horizon Organic, International Delight, and Land O' Lakes. Sales continue through new products and cross branding through categories. In the most recent third quarter, total WhiteWave sales were up 10% to $639 million. Earnings per share also increased 21% in the third quarter. Here is a look at sales by category:

· North American plant based food and beverages: +14%

· Europe plant based food and beverages: +19%

· Premium dairy: +3%

· Coffee creamers and beverages: +9%

In 2013, WhiteWave has now posted sales increases of 9%, 10%, and 10% through the respective first three quarters. The company has forecasted earnings per share to hit $0.71 to $0.72 for the full fiscal year. Analysts are expecting earnings per share of $0.72 from revenue of $2.53 billion (+9.6%). In 2014, earnings are seen rising to $0.84 from revenue of $2.73 (+8.0%). WhiteWave continues to target growth of 7% in sales annually and 21% in earnings per share.

While shares of WhiteWave hit new highs and now seem to look expensive with high price to earnings, the growth is more than justifiable. Also, when comparing WhiteWave to another favorite food specialty of mine in Boulder Brands (NASDAQ:BDBD), shares look cheap. Boulder Brands shares trade at two times current fiscal year sales, while WhiteWave has a price to sales ratio of only 1.6. Boulder Brands has current and forward price to earnings ratios of 49.4 and 33.3 respectively. WhiteWave has price to earnings of 31.8 and 27.3 respectively.

Investors are paying a high multiple for the growth associated with WhiteWave. The company is a category killer with market leading positions in high growth areas. This acquisition is the first of many to come and will help the company post annual sales gains in the high single to low double digits. The price multiples will come down as growth metrics are met. Investors should be willing to buy shares under $25 at the current time.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in WWAV over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.