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Summary

  • The natural/organic food revolution is gaining momentum and WhiteWave is executing well.
  • Strong performance by peers help grow the natural, organic and plant-based food/beverage category.
  • WhiteWave price target of $40.25 by FYE 2015.

There is some very good science on nutritional health that unfortunately concludes the traditional American diet, especially related to animal protein, may be more harmful than helpful in the quantities consumed today. Why this information is not more widely known is a discussion for another time. Consumers are figuring it out and companies in the natural/organic and plant-based protein business stand to benefit greatly if consumers continue to allocate more money to these food categories.

To better understand WhiteWave Foods' (NYSE:WWAV) financial performance we are going to compare it to three other successful peers: Hain Celestial Group (NASDAQ:HAIN), SunOpta (NASDAQ:STKL) and Annie's (NYSE:BNNY) all high-growth food manufacturing companies. They all deliver strong performance in several areas, but WhiteWave appears to have a slight edge. It is also setting up in an attractive technical chart pattern. Other articles are available on Seeking Alpha that cover the business of each company in more detail and readers are encouraged to learn more about their businesses.

We begin by comparing the following big-picture numbers.

WWAV

HAIN

STKL

BNNY

Current P/E Ratio

38

31

41

37

Market Cap

$5.26 Bil

$4.55 Bil

$818 Mil

$549.7 Mil

Price % Change Last 12 Months

64%

35%

69%

-38%

Sales Ttl Last 4 Qtrs

$2.764 Bil

$2.033 Bil

$1.232 Bil

$193.6 Mil

EPS Ttl Last 4 Qtrs

$0.79

$2.08

$0.30

$0.87

Next Year EPS Estimates

$0.98

$3.15

$0.44

$0.92

Next Year EPS Estimates Growth Rate

32%

25%

63%

15%

Source - Marketsmith

All four companies trade at a premium to the market, which currently has a P/E around 16. That is understandable given the accelerated sales, and in most cases earnings-growth, they are all delivering which is profiled later in this article. WWAV and HAIN are firmly in the mid-cap space versus the smaller size of STKL and BNNY. STKL is the only company with annual sales higher than their market cap. STKL also serves up the highest growth rate for next year's EPS. WWAV is expected to deliver a respectable 32% rise in EPS growth next year.

Next, we take a closer look at top line sales growth.

Sales Growth Last 4 Qtrs

Latest Qtr.

2-Qs Back

3-Qs Back

4-Qs Back

WWAV

36%

12%

11%

11%

HAIN

22%

17%

33%

32%

STKL

18%

6%

8%

10%

BNNY

27%

26%

14%

23%

Source - Marketsmith

WWAV is the only company that did not see quarterly sales-growth decline during the last year. More importantly, their accelerated growth during the last quarter is well ahead of their peers and the highest reported number overall. As a group of related companies, the consistently growing sales growth is a positive, especially the more recent acceleration.

Next, we will take a look at bottom line growth rates.

EPS Growth Last 4 Qtrs

Latest Qtr.

2-Qs Back

3-Qs Back

4-Qs Back

WWAV

38%

22%

19%

23%

HAIN

22%

18%

27%

38%

STKL

25%

-57%

-30%

0%

BNNY

13%

17%

8%

21%

Source - Marketsmith

WWAV and HAIN deliver consistently strong results with a slight advantage to WWAV. Growth in profitability has been a challenge for STKL and partially explains why sales is higher than market capitalization. Its recent profit-growth reversal may be worth keeping an eye on especially if next year's estimates are realized. However, the stock is extended which represent a high-risk entry point.

We see a slightly different picture when we compare annual EPS growth rates over the last 3 years.

Ann. EPS Growth Last 3 Years

2013

2012

2011

WWAV

23%

-22%

45%

HAIN

67%

36%

36%

STKL

-25%

50%

-27%

BNNY

8%

-29%

200%

Source - Marketsmith

HAIN is the only company of the group to deliver consistent annual-earnings growth over the last three years. HAIN delivered stellar growth in the most recent period with WWAV also delivering strong results. HAIN has traded sideways since the start of the year and might be worth keeping an eye on.

Now we will turn our attention to additional financial metrics.

WWAV

HAIN

STKL

BNNY

Return on Equity

13%

11%

6%

90%

Debt Level

67%

54%

14%

11%

% R&D

N/A

N/A

N/A

N/A

Annual Pre-Tax Margin

7.9

10.1

2.6

13.8

Cash Flow Vs. EPS % Last Year

43.90%

0.70%

62.9

-38.4

Source - Marketsmith

Outside of BNNY's amazing 90% ROE, WWAV delivers a respectable 13%. WWAV's debt level is a bit high but remains manageable. BNNY is the only stock in the group currently trading in a downtrend.

STKL's low margin may be another reason the company's market cap is currently below annual sales. WWAV is in the process of improving margins and specifically discussed in their most recent conference call initiatives underway already delivering positive results. However, the company continues to invest heavily which may weigh on margins for some time.

The final set of data looks at earnings, a composite score and institutional support.

WWAV

HAIN

STKL

BNNY

EPS Growth Rate

13%

25%

20%

59%

Earnings Stability

11

14

33

79

IBD Composite Rating

98

94

78

57

Funds % Increase

8.2%

1.8%

-2.7%

-3.2%

Source - Marketsmith

A higher EPS Growth Rate for WWAV would be preferred but should improve going forward if they continue to improve sales and earnings growth. The company does deliver the most stable earnings, which may speak to skilled financial management by their very experienced executive team. It also has the highest composite rating, which takes a number of factors into consideration. More importantly is the increase in the number of mutual funds (463) that reported owning shares of WWAV in the most recent quarter. This is a huge vote of confidence for the future of the company.

Using an earnings estimate of $1.15 (from Marketsmith) for 2015 and a slightly reduced P/E of 35 would suggest a price target of $40.25 for WWAV over the next 18 months, representing a 33% gain from the current price around $30.20. This may prove to be conservative if the company is able to deliver stronger top and bottom line growth. On the other hand, the reduction in 2015 EPS growth (17% versus 32% for 2014) rate could bring the P/E multiple down.

From a technical standpoint WWAV is close to a 52-week high after consolidating gains since March. A breakout on volume past $30.50 might represent an excellent entry point. Although it's slowly improving, the broad market remains dicey and WWAV could pull back aggressively if the market experienced selling pressure.

Overall, this category of the food business may represent significant investment opportunities in the coming years if consumers change their purchasing habits and spend more on the type of products they sell. Investors interested in high-growth small and mid-cap stocks may want to investigate these companies in more detail.

No investment recommendations have been made in this article. Investing involves risk including the loss of capital. Conduct your own research before making any investment decision.

Data Definitions

Return on Equity: The amount of net income returned as a percentage of shareholders' equity.

Debt Level: Calculated by dividing debt by shareholders' equity.

Annual Pre-Tax Margin: Calculated by dividing annual operating income by sales.

Cash Flow Vs. EPS % Last Year: Percentage difference between operating cash flow per share vs. earnings per share from the last completed fiscal year.

EPS Growth Rate: The compound growth rate using the least squared fit over the latest two to three year's earnings per share on a running 12-month basis.

Earnings Stability: Indicates in percentage from one standard deviation of the variability around the trend line fitted through 3 to 5 years of earnings history with a scale ranging from 1 to 99. Lower numbers represent more stable company earnings history.

Composite Rating: IBD exclusive proprietary rating, combines 5 SmartSelect Ratings.

Funds % Increase: Represents the % change in the number of mutual funds owning a company's stock vs. the previous quarter.

Source: WhiteWave - Riding The Nutrition Change Wave