Dean Foods: Don't Cry Over Spilled Milk

| About: Dean Foods (DF)

Dean Foods (NYSE:DF) is getting cheap -- real cheap -- real fast. In fact, the shares have lost nearly one half their value this year alone and teeter just about 10% above their all time lows. The carnage in the share price has created a smorgasbord of bargain hunter’s “hot buttons," such as a single-digit forward multiple, a price to sales ratio of .16 and a price to book value reading of 1.2. The lower the shares get, the harder it is for these “value seekers” to resist.

Insiders are buying: Company insiders are betting that their investment will not sour further. In the last three months, a total of four insiders (comprised of Officers Engles, Scalzo, Wright and Deryckere) purchased a total of 65,000 shares in the open market at an average price of about $10.25. This is an encouraging sign since insiders seldom put their own money on the line unless they have a certain degree of confidence in their company’s prospects.

Processing facilities: The company owns and operates over 106 processing plants throughout the USA , including five international locations. The industry has high barriers to entry, providing a certain floor of worth to its facilities .There is also substantial hidden value in these real estate locations, since most were acquired when prices were much lower.

Credit line amended: Although the company has substantial debt of over $4 billion, it was able to extend its maturities and loosen its covenants to improve its liquidity, as it works through today’s difficult economic environment. The amended credit facilities were not cheap, however, as higher interest rates associated with the amendments will cost the company an additional $44 million per annum.

Analyst opinions and S&P upgrade: There are ten analysts that hold opinions on DF. As far as one year price targets are concerned, $10 is the lowest analyst target price while $17, is the highest. The most recent analyst action was by S&P Equity who raised their rating from a sell to a hold, paving the way for additional upgrades.

Bottom line: The stock has indeed shown signs of bottoming, presenting a sort of “shooting fish in a barrel” scenario. Although there is no doubt holders of this stock have experienced severe losses, now is not the time to cry over spilled milk, but to average down their positions. It is evident that the shares represent a compelling risk to reward calculation, with minimal risk (about $1) and substantial reward. In fact, short term holders could easily see $12 within a month or two, while those with longer term aspirations could see their investment reap $20 in the next 12 months.

Disclosure: Long DF