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Pinnacle Foods Inc.: Initiation of Research Coverage

Friday, January 27, 2017

William Blair & Company initiated research coverage of Pinnacle Foods Inc. (PF $53.14), a manufacturer and marketer of a diverse portfolio of quality branded frozen, refrigerated, and shelf-stable foods in the United States and Canada. Its brands are sold in all major retail food channels.

Analyst Jon Andersen expects the company to generate long-term organic sales growth in line with or above target categories, operating income growth of 4%-6%, and EPS growth of 7%-9%. He estimates EPS will be $2.15 in 2016 and $2.50 in 2017.

“Pinnacle is an assemblage of packaged food brands that collectively have long tenure in the North American market,” Andersen said. “Based on IRI data, the categories targeted by Pinnacle’s 10 largest businesses collectively represent nearly $30 billion at retail in the United States. Pinnacle’s market share, weighted by sales, averages 15%, leaving ample room for market share expansion. Pinnacle’s brands are generally leaders in their categories or product segments, possess scale to support innovation and marketing investment, and are valued by retailers. The majority of its brands generate sales in excess of $100 million and possess No. 1 or No. 2 market share positions. And a clear segmentation strategy is used to support brands with the highest growth potential and margin profile.”

Andersen continued, “Pinnacle’s portfolio has been built on internal growth and, perhaps more notably, value-adding acquisitions. Since 2001, Pinnacle has successfully acquired and integrated six companies—and many more brands—into the portfolio. Broad scale and capabilities enable the company to consider a wide range of potential candidates, while strong free cash flow generation provides capacity for future accretive acquisitions. We believe Pinnacle’s objective to grow sales at a rate in line with or above its categories is supported by its focus on strengthening the core via innovation and efficient brand support, expanding its health and wellness presence, and enhancing coverage in the faster-growing online, value, and convenience channels.”

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