Why Did Deutsche Bank Downgrade Flowers Foods After Earnings?

Courtesy of Benzinga.

Deutsche Bank recently issued a report on Flowers Foods, Inc. (NYSE: FLO) after a recent selloff of the stock. Analysts at Deutsche Bank downgraded Flower Foods from Buy to Hold, and lowered their price target from $25 to $18.

Eric Katzman and Mario Contreras, analysts and associates at Deutsche Bank, wrote, “[W]e note Flowers has a strong balance sheet with 2.2x net debt/EBITDA, 110 percent FCF efficiency and a relatively attractive 6 percent+ FCF yield. But to remain positive on the shares, such supportive details aren’t sufficient and we don’t see how the landscape improves intermediate term or allows the stock to regain lost ground.”

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Key Takeaways

Analysts at Deutsche Bank gave two key reasons why they downgraded Flowers Foods:

1. Industry Competition
Deutsche Bank noted that the baked foods industry has become increasingly competitive in recent years, which has put pressure on Flower Food’s margins and ability to drive top line growth. Going forward, analysts believe that to grow sufficiently, Flower Foods will have to introduce new products to the market in order to differentiate themselves from other major companies.

2. Input Cost Volatility
Deutsche Bank wrote that Flower Foods is exposed to fluctuations in items such as wheat and energy, which have the ability to negatively affect the company’s bottom line. While company management has made strides in improving operating efficiency, analysts believe that the volatility in input costs has the ability to be a negative headwind in the near term.

At the time of this publication, Flower Foods was trading down 2.14 percent on the day at $16.45.

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