How Should You Play Post Holdings Stock at a P/S Multiple of 0.8X?

Post Holdings, Inc. POST is trading at an attractive valuation, considering its price-to-sales (P/S) multiple, which is lower than the Zacks Food – Miscellaneous industry and the broader Consumer Staples sector. POST’s forward 12-month P/S ratio is 0.79, lower than the industry average of 1.30 and the sector average of 7.67.

This relative undervaluation, coupled with a strong Value Score of A, positions Post Holdings as a compelling choice for value-focused investors within the consumer staple space.

However, the stock has faced headwinds recently, declining 3.6% over the past three months compared with the industry’s drop of 7.7%. Investors should weigh its compelling valuation and growth prospects against the recent stock underperformance and broader industry risks.

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What Positions POST Stock for Growth?

Post Holdings has made notable strides with strategic buyouts, including the purchase of Perfection Pet Foods and Deeside Cereals, enhancing its pet food and cereal categories. The company’s pricing strategies to counter rising input costs are also contributing to its performance, as witnessed in fourth-quarter fiscal 2024 results. 

During the quarter, Post Holdings delivered a standout performance in its Foodservice segment, underscoring its pivotal role in driving growth. The segment reported a robust 4.7% increase in net sales, reaching $596.1 million, alongside a 3.6% rise in volumes fueled by strong distribution gains in eggs and potatoes. Precooked egg products saw an impressive 7.5% volume surge, highlighting its high-margin appeal. The segment delivered these results despite challenges such as HPAI-driven supply disruptions and elevated input costs. 

This resilience stemmed from Post Holdings’ strategic emphasis on value-added offerings and adept inventory management, ensuring cost alignment with pricing strategies to optimize profitability. With its expanding distribution footprint and premium product mix, the Foodservice segment remains a cornerstone of Post Holdings’ growth strategy, poised for continued success in fiscal 2025 and beyond.

Post Holdings has been benefiting from strategic pricing actions, which played a key role in driving the company’s fourth-quarter fiscal 2024 results. The annualized pricing improvements were critical in offsetting challenges such as the decline in cereal category volumes and higher advertising expenditures. Across its portfolio, the company saw a 3% increase in average net pricing in the fourth quarter, contributing to overall sales despite a slight drop in volumes. In particular, pricing helped mitigate cost pressures in its pet food business, even with reduced distribution points for some products and price elasticity in others. 

These strategic price adjustments, coupled with robust cost management, enable Post Holdings to maintain profitability, even in the face of volume pressures from a challenging consumer environment.

Post Holdings: Challenges to Watch

Post Holdings navigated several macroeconomic and consumer headwinds in the fourth quarter, which influenced its overall performance. The company faced ongoing pressures from inflation, which, while leveled off compared to prior periods, continued to put pressure on volume growth. Consumer demand remained subdued, particularly in more price-sensitive categories like cereal. Post Holdings’ operations were impacted by fluctuating consumer confidence and evolving purchasing patterns, as consumers continued to prioritize value and essential products amid broader economic uncertainty. 

The company’s Post Consumer Brands segment faced a range of challenges in the fourth quarter, which contributed to a 3% decrease in net sales and a 6% decline in volumes in the segment. The most significant factor was the continued weakness in the cereal category, where volume declines were observed despite the company's efforts to outperform the broader market. While pricing improvements helped offset some of these declines, the segment still experienced headwinds from lower consumer demand and a challenging retail environment. Although Post Consumer Brands benefited from a favorable mix shift in its cereal portfolio and the ongoing growth of its pet food business, the impact of volume loss in its core cereal offerings remained a major concern.

Post Holdings has been seeing a rise in SG&A costs for the past several quarters. In the fourth quarter of fiscal 2024, the metric increased 10.4% to $341.7 million, whereas as a percentage of net sales, it expanded 110 basis points to 17%. The rise in SG&A expenses was mainly caused by escalated advertising and commercial expenditures. The persistence of the trend is concerning for the company.

Investor Strategy for POST Stock

Post Holdings’ attractive valuation positions it favorably within the consumer staples space, particularly for value-focused investors. Strategic acquisitions and pricing initiatives have bolstered growth, with the Foodservice segment standing out as a critical driver of positive performance. However, the company has faced persistent headwinds, including inflationary pressures, evolving consumer behavior and category-specific weaknesses, notably in its cereal business. Investors should consider Post Holdings’ long-term growth potential against the backdrop of ongoing operational challenges. The company currently carries a Zacks Rank #3 (Hold).

Some Solid Staple Bets

We have highlighted three better-ranked stocks from the Consumer Staples sector, namely United Natural Foods, Inc. UNFI, Ingredion Incorporated INGR and Freshpet FRPT.

United Natural currently sports a Zacks Rank of 1 (Strong Buy). UNFI delivered a trailing four-quarter earnings surprise of 553.1%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The consensus estimate for United Natural’s current financial-year sales and earnings suggests growth of 0.3% and 442.9%, respectively, from the year-ago period’s reported figure.

Ingredion Incorporated manufactures and sells sweeteners, starches, nutrition ingredients and biomaterial solutions derived from wet milling and processing corn and other starch-based materials. The company currently carries a Zacks Rank #2 (Buy).

INGR has a trailing four-quarter earnings surprise of 9.5%, on average. The Zacks Consensus Estimate for Ingredion’s current financial year’s earnings indicates growth of 12.4% from the year-ago reported number.

Freshpet, a pet food company, presently carries a Zacks Rank #2. FRPT has a trailing four-quarter earnings surprise of 144.5%, on average.

The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings suggests growth of 27.2% and 228.6%, respectively, from the year-ago period’s reported figure.

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Freshpet, Inc. (FRPT): Free Stock Analysis Report
 
United Natural Foods, Inc. (UNFI): Free Stock Analysis Report
 
Ingredion Incorporated (INGR): Free Stock Analysis Report
 
Post Holdings, Inc. (POST): Free Stock Analysis Report

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