LW

Publicly traded companies mentioned herein: Lamb Weston Holdings Inc (LW)

Highlights

The presenter is long shares of Lamb Weston Holdings Inc (LW), one of the largest potato processors and the only publicly traded player in the space. LW has 6B pounds of capacity in North America and recently acquired the remaining interest in its EMEA JV Lamb Weston-Meijer (LWM), adding another 2B pounds of capacity. The stock has been a consensus long in recent quarters. Two years ago, a historically bad harvest coincided with high input cost inflation, causing significant contraction from low-20% EBITDA margins to sub-18%. Based on the oligopolistic market structure, bullish investors expected LW to flex its pricing power to offset inflation, and then see margins recover on a higher revenue figure when a more normal harvest occurred. That all played out over the past year, and the story is now pivoting to capacity expansion. The stock recently fell 13% due to a noisy quarter against crowded positioning, but the underlying health of the business is strong, creating an attractive risk/reward setup from the current $100 share price with upside to $135 and downside of ~$90.