LW

Publicly traded companies mentioned herein: Conagra Brands Inc (CAG), Lamb Weston Holdings Inc (LW), McDonald’s Corp (MCD), Walmart Inc (WMT), Yum! Brands Inc (YUM)

Highlights

The presenter is long shares of Lamb Weston Holdings Inc (LW), the producer and supplier of frozen potato products that spun out of CAG in 2016. LW secures raw potatoes from farmers largely around the Columbia River Basin in Washington. It then cuts, peels, and fries the potatoes before storing them in large freezers and eventually shipping the products to its largely domestic customer base (domestic business represents 80% of revenue). This customer mix is skewed to its large-scale QSR business (e.g., MCD, YUM, etc.), which makes up just over 50% of total revenue. It also has a retail segment (13% of revenue), which sells its frozen products to WMT and other retailers, and a foodservice segment (30% of revenue), which sells to large distributors that supply independent restaurants, small QSRs, cafeterias, and stadiums. Following the 2016 IPO, the presenter liked the company but its multiple quickly appreciated beyond his appetite. In May 2019, a LW short pitch was deemed the winner at the Sohn New York Investment Conference, causing the stock to fall 12% to $59 per share. Following the dip, LW appreciated and reached a new high of $95 per share until COVID-19 hit, sending the share price back down to the current $52 price. At this level, the presenter considers the company undervalued on the back of a product sourcing competitive advantage, an opportunity for volume growth, and his belief in its underappreciated long-term pricing power. Based on these factors, he has a 2023 price target of $80+ per share.