TreeHouse Foods: Climb Out of the Pickle Jar!

Food manufacturer TreeHouse Foods Inc.(THS) is a relatively new company, formed in 2005, when Dean Foods Company (DF) combined its specialty foods group with its foodservice salad-dressing group to make THS, a publicly traded company.

Currently, its financial juice comes from pickles -- accounting for 50% of TreeHouse's revenue base. It manufactures and distributes them under the brands Farmans, Nalley's, Peter Piper, and Steinfeld. Additional revenue streams come from non-dairy creamers under the brand names of Cremora and Mocha Mix; private soup labels; salsa and Mexican sauces; the Nature's Goodness baby food brand; and shelf-stable, as well as refrigerated foods like pudding and cheese sauces. The pickle here is that the company, I think, is too reliant on pickle revenue.

We might see a change soon. This year, TreeHouse agreed to acquire E.D. Smith, a leading producer of private label salad dressings here in the U.S., and the leading private label manufacturer of dry grocery goods in Canada. The acquisition will open up wider opportunities for the company, said THS chairman and CEO Sam Reed in a press release.

With the addition of ED Smith, the company's revenue from pickles will drop from 50% to 25%. Owning E.D. Smith will relieve the company of that strain and compliment other existing lines like Mexican specialty products.

Along with other analysts, I think that TreeHouse can kick the pickle business, and in doing so, shares will rise in value. Proceeds can go to more new acquisitions that compliment TreeHouse's business.

Type of Stock: A leading manufacturer of branded and private label food products, like pickles and non-dairy creamers, which are marketed and distributed in Canada and the United States.

Price Target: Trading at $26.92, I think at this price we might see real gains soon. If TreeHouse cleans its house, particularly of its pickle business, we could see this stock climb into the mid-$30s.