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Few areas of the market have managed to stay above the selling in 2022 outside of the booming energy sector. Lamb Weston LW stock didn’t just avoid the fall, it has climbed over 30% YTD to hit new 52-week highs recently, as it thrives amid an economic downturn.

A Consumer Staples Cornerstone

Lamb Weston is one of the largest suppliers of frozen potatoes in the world, selling a nearly endless array of potato-based offerings. LW makes everything from classic fries to sweet potato waffle fries and everything imaginable in between. The company also sells potato chips, hash browns, mashed potatoes, and beyond, alongside some frozen vegetables.

Lamb Weston sells its frozen potato products to restaurants and retailers around the world. The company’s growth has been rather impressive outside of its covid-based downturn, as fries and potatoes are core parts of diets in the U.S. and beyond.

Recent Growth and Outlook

Lamb Weston topped our Q1 FY23 (period ended on August 28) earnings estimate in early October. The firm grew its revenue by 14% YoY to $1.13 billion even though volumes declined due to “softer casual dining and full-service restaurant traffic in the U.S. as well as the timing of shipments to large chain restaurant customers.” LW was able to raise its prices nearly across the board, with its price/mix up 19%.

Meanwhile, its adjusted earnings soared 317% to $0.75 per share to crush our bottom-line estimate by 44%. LW has now topped the Zacks consensus estimate by an average of 47% in the trailing four quarters. Despite large-scale macroeconomic setbacks, Lamb Weston executives said it was on track to deliver on the higher end of its fiscal 2023 financial targets.

Zacks estimates call for Lamb Weston’s revenue to climb roughly 15% both this year and next to go from $4.10 billion in FY22 to $5.39 billion in FY24. This would follow 12% revenue growth in fiscal 2022.

Lamb Weston’s adjusted earnings are projected to soar 46% this year and another 28% next year to reach $3.90 per share. Plus, its consensus EPS estimates for FY23 and FY24 have popped since its early October release to help it land a Zacks Rank #1 (Strong Buy) right now. 

Image Source: Zacks Investment Research

Other Fundamentals

Lamb Weston stock has soared over 50% in the past 12 months vs. the S&P 500’s 22% fall and its industry’s 3% climb. This run includes a nice 35% surge in 2022 that saw it break new 52-week highs on November 2.

Despite the climb, LW still trades below its pre-covid peaks and its average Zacks prices target offers 10% upside to the $85.46 a share it closed at on Friday.

LW stock has climbed 185% since it was spun off from ConAgra Foods, Inc. CAG in the fall of 2016. Lamb Weston shares trade at 24.9X forward earnings, which is near its median and 22% below its highs.

The stock does trade at a premium compared to its industry, but the stock has also crushed its industry since going public (185% vs. 1.5%).

Lamb Weston pays a dividend that currently yields 1.2% and it repurchased $28 million of common stock last quarter. On top of that, four out of the five brokerage recommendations Zacks has are “Strong Buys,” alongside one “Hold.”

Bottom Line

Lamb Weston is set to benefit from its stature as a key provider of consumer and restaurant staples amid the current bought of inflation and slowing spending.

More broadly, the ongoing market and economic uncertainty favors companies with stable, boring businesses that have pricing power. Right now, it appears that investing in one half of the meat and potatoes combo could pay off for investors.

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Conagra Brands (CAG): Free Stock Analysis Report
Lamb Weston (LW): Free Stock Analysis Report
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