Dean Foods Serves Up An IG Rating, While Equity Markets Have High Expectations

May 19, 2016


Moody’s is materially overstating the credit risk of Dean Foods Company (NYSE:DF) with its B1 rating. Our fundamental analysis highlights a much safer credit profile for DF, whose stable cash flows cover all operating obligations going forward. Moreover, their healthy liquidity profile would allow them to service all obligations including debt maturities through 2022. We, therefore, rate DF five notches higher at an IG4 credit rating, or a Baa2 equivalent using Moody’s ratings scale.

Meanwhile, cash bond markets are overstating the firm’s credit risk with a cash bond YTW of 5.375%, relative to an Intrinsic YTW of 4.055%, while CDS markets are accurately stating credit risk with a CDS of 249bps relative to an Intrinsic CDS of 240bps.


Contrary to credit markets, equity markets are fairly bullish, expecting ROA’ to expand to 8% from 5% in 2015, with 3% Asset’ shrinkage going forward. However, DF is trading at a low 1.1x V/A’ relative to historical valuations. As a result, even if the firm succeeds in pushing ROA’ up to 8% levels, the equity is likely fairly valued, even with more muted analyst expectations. Alternatively, if the firm does have issues making fundamental improvements to expand ROA’, there could be equity downside.

Click here to read the article in its entirety at Seeking Alpha.

You don’t have access to the Valens Research Premium Application.

To get access to our best content including the highly regarded Conviction Long List and Market Phase Cycle macro newsletter, please contact our Client Relations Team at 630-841-0683 or email

Please fill out the fields below so that our client relations team can contact you

Or contact our Client Relationship Team at 630-841-0683