Bear of the Day: Lamb Weston (LW)

In This Article:

Lamb Weston is a global producer, marketer, and distributor of frozen potato products. The company offers frozen potatoes, commercial ingredients, and appetizers under the Lamb Weston brand, in addition to other licensed brands and various customer labels.

Lamb Weston is also engaged in the vegetable and dairy business. It serves retail and foodservice customers, specialty retailers, convenience stores, and both independent and chain restaurants. Lamb Weston was founded in 1950 and is headquartered in Eagle, Idaho.

The stock was recently downgraded by analysts at Bank of America, who cited intensifying global competition and disappointing quarterly results. As we’ll see, the consensus trend for earnings estimates shows a clear negative tilt.

The Zacks Rundown

Lamb Weston LW, a Zacks Rank #5 (Strong Sell) stock, is a component of the Zacks Food – Miscellaneous industry group, which currently ranks in the bottom 37% out of approximately 250 Zacks Ranked Industries. As such, we expect this industry group as a whole to underperform the market over the next 3 to 6 months, just as it has throughout 2024:

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Stocks in the bottom tiers of industries can often be intriguing short candidates. While individual stocks have the ability to outperform even when they’re part of a lagging industry, the inclusion in a weaker group serves as a headwind for any potential rallies and the journey forward is that much more difficult.

Lamb Weston shares have been underperforming this year while the general market returned to new heights. The stock has experienced considerable volatility and represents a compelling short opportunity as we approach the New Year.

Undoubtedly a key player in the frozen potato market, the company has been grappling with several challenges in recent months. Critical factors include a decline in global restaurant traffic, rising competition, and a tough manufacturing environment.

Recent Earnings Misses & Deteriorating Outlook

Lamb Weston has fallen short of earnings estimates in three of the past four quarters. Earlier in December, the french-fry producer posted dismal results for its fiscal second quarter. Adjusted earnings came in at 66 cents per share, reflecting a -35% miss versus the consensus estimate. The metric also plunged -54% versus the year-ago period.

Net sales of $1.6 billion fell -8% year-over-year and also missed the Zacks Consensus Estimate. Lamb Weston continues to witness lower volumes and expects difficulties to linger throughout this year as well as fiscal 2026. Higher raw potato prices, inefficiencies, and increased transportation and warehousing costs are adding to company pressures.


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