Dean Foods stock rallies on JPMorgan upgrade

SAN FRANCISCO, Jul 15, 2008 (Thomson Financial via COMTEX) -- JPM | Quote | Chart | News | PowerRating -- Shares of Dean Foods Co. rallied Monday after J.P. Morgan upgraded the stock to overweight from neutral and said shares of the Dallas-based dairy products company "have been oversold on fears of coming dairy inflation and current spikes in energy and resin costs."

Analyst Terry Bivens Monday said dairy costs will likely fall year-over-year for the next 18 months. Dairy farming as a whole remains "quite profitable" and cuts in production appear unlikely, he wrote in a note to clients.

"Indeed, the number of dairy cows producing milk and total milk production are at a five-year high."

Dean Foods also may be able to pass on higher resin costs incurred from the roughly 27 million pounds of resin/plastic bottles it uses each month, he said.

Some concerns remain, he added. Consumers are increasingly trading down to lower-margined private milk from branded labels.

But Dean Foods could trim costs in its dairy division by as much as $5 billion, which would have a significant impact on margins, according to Bivens. The stock could prove a "compelling momentum story," possibly appreciating 20% by the end of the year, he said.

Bivens sees a profit of $1.26 a share in 2008 and $1.60 a share in 2009. The mean estimate of analysts polled by Thomson Reuters was a per-share profit of $1.26 in 2008 and $1.61 in 2009.

The stock was trading up 4% at $18.72.

Brigid Gaffikin bg/vj

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