Avoid the 'temptation' to buy Dean Foods on takeout thesis, says JPMorgan.
In a post-earnings research note titled "In This Case, It's Okay to Cry over Spilt Milk," JPMorgan analyst Ken Goldman says Dean Foods announced Q4 earnings below consensus, the suspension of its dividend, the suspension of guidance, and a strategic review. The strategic review apparently could include "almost anything under the sun," with management tossing out a variety of options, including a sale, Goldman writes. The analyst recommends "avoiding the temptation" to buy Dean on the thesis it can get taken out for premium. If Dean does happen to find a buyer, which is unlikely, the stock will probably be purchased at a discount to the current price, contends Goldman. He points out that Dean is a "levered company with a fast-deteriorating business and numerous out-of-date production facilities." The analyst believes management throwing out sale as an option feels "like a shot in the dark." Goldman recommends shorting any potential strength today in the shares and keeps an Underweight rating on Dean Foods. The stock in premarket trading is down 13% to $3.97.