Danone: Oddo downgrades stock and cuts target price

(CercleFinance.com) - Oddo has downgraded its recommendation on the Danone share to Reduce (vs.
Neutral previously), while cutting its corresponding target price to 69 euros - about the share's current price (vs. 84 euros previously), taking into account the risk of a continued underperformance within the Food HPC sector.
The broker says that a 2020e P/E of 16x is a probable multiple in the current context.

Oddo believes that there is a risk of market sentiment deteriorating regarding the risk profile. It adds that a sales warning is more and more consensual on the group's 2020 target. However, it does not believe that this is correctly priced in.

An in-depth analysis of Q3 shows that implicitly yogurts in the US are seeing a 2% fall, but above all that Waters in China are are seeing a greater drop (-9%), as are Dairy products in Russia (-4%). This inflection on key profit sources (17 % of group revenues) is sufficient to cast doubt on the 2020 organic growth guidance (4% to 5%), and this since last October, Oddo adds.

Analysts say that a margin reset has not been included, while this could shave off up to 5% from the group's EPS. The broker expects EPS growth of 9%, with organic growth of 2.6%. This would bring EPS growth to 48% vs. 2014, with Operating FCF expected to double.


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