Is Dean Foods Company (DF) a Buy After The WhiteWave Foods Co (WWAV)’s Spinoff?

Peers Comparison

Currently, WhiteWave is trading at around $16.70 per share, with a total market capitalization of nearly $2.9 billion. The market is valuing WhiteWave at 12.86x EV/EBITDA. One of its peers, General Mills, Inc. (NYSE: GIS), is a much bigger company with a market cap of $27.55 billion. With the LTM EBITDA of $3.51 billion, the market is valuing General Mills a bit cheaper at 10x EV/EBITDA. The operating margin of General Mills, 17%, is much higher than the operating margin of WhiteWave at 8%. General Mills’ high operating margin was due to a high operating margin of its US Retail segment, which was the biggest revenue contributor of the company. In fiscal 2012, US Retail generated nearly $10.5 billion in revenue and $2.3 billion in operating profit. Thus, the operating margin of the US Retail segment was 21.9%.

Foolish Bottom Line

Between Dean Foods and WhiteWave, Dean Foods seems to be the good pick at the current price with the cheapest valuation. However, it is left with only low margin milk business after selling Morningstar and spinning off WhiteWave. WhiteWave seems to be a much better business with a much higher margin, but it is a bit richly valued.  I’d rather wait before initiating any positions in either WhiteWave or Dean Foods.

The article Is Dean Foods a Buy After WhiteWave’s Spinoff? originally appeared on Fool.com and is written by Anh HOANG.