Jim Cramer discussed the reasons behind hammering of Dean Foods Co (NYSE:DF) and made some important predictions about the company in his program, Mad Money on CNBC. Cramer said that Dean Foods Co (NYSE:DF) came down because of milk prices and it will make a strong comeback because milk prices will go down in the coming days. He said that Dean Foods is clearly an underappreciated value stock.
“Wall Street is underestimating what Dean Foods Co (NYSE:DF) can earn, even the analysts who are bullish on the stock are forecasting results that I think can be way too pessimistic, everybody is expecting the worst here, the worst case scenario, which means that if Dean Foods can simply do Ok, not even shoot the lights out, then the company should be able to deliver some terrific earnings beats and this stock could run up dramatically” said Cramer.
According to Cramer, the single most important reason behind the Dean Foods Co (NYSE:DF) stock problem was the hike in milk prices, which went up by 33%. As a result of this increase, Dean Foods was hammered because milk is the single most important product in raw cost. Milk prices are now on the decline, going 7% down in the month of June. Cramer said that as the milk prices go down, Dean Foods Co (NYSE:DF) earnings will definitely increase because milk prices have an importunate effect on the company.
Giving the reasons for his optimism regarding milk prices, Cramer said that milk prices got up because of the increase in demand and depletion of supply, because of supply chain issues from the US and New Zealand. But now, the supplies are getting back to normal and this will decrease the milk prices in the market.
“The analysts who covered Dean Foods Co (NYSE:DF), who tried to forecast what the company can earn they are not commodity guys, they are equity analysts and their models, what they think this company is gonna earn are very much behind the curve at this moment,” said Cramer.
Cramer also said that Dean Foods Co (NYSE:DF) is profitable as compared to its competitors even after the price hikes in the milk because it has 40% milk shares in the country. He rejected the estimates made by equity experts and said that the prices of milk will come down in a very short period of time