No. of Recommendations: 0
Hi Anurag,

I'm not really looking at these companies with other multiples like EV/EBITDA or EV/FCF (or P/FCF). I'm looking at what the market is expecting at today's price and then considering if that's reasonable or not. Some will undoubtedly appear cheaper than others on such metrics, but that's not the driving force behind this.

Dean Foods, if they can continue on their cost-cutting path, should be able to expand margins, even with the low retail price of milk nowadays. That will make them look better down the road and the price will be driven up. In my write up, I pointed out that even a 2% growth in FCF for five years, 1% for five years, and 0% after that, if the expectations turned to that, the price would see a nice boost.

With this company, I don't think the margins will ever be very high, but the low margins seen today shouldn't be what the company is capable of down the road.

Others, such as Power-One, may have more oomph behind them, so could give a really good return, but Dean Foods, even changing expectations by a few percentage points, should do well for the portfolio.

Cheers,
Jim
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