Wednesday, October 21, 2020

A Small Cap Equity holding: Lamb Weston Holdings, Inc (LW, $72.22): “BREAKING – People still love French Fries” by: Jack Blum, AIM Student at Marquette University

Lamb Weston Holdings, Inc (LW, $72.22): “BREAKING – People still love French Fries”

By: Jack Blum, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


• Lamb Weston Holdings, Inc. (NYSE: LW) engages in the production, distribution, and marketing of frozen potato products. They have four main business segments, and they sell their products across the globe.

• Lamb Weston has been a stellar performer for our fund since being added in the end of March, and the company recently just added an earnings beat to their incredibly stellar YTD performance.

• The company was absolutely hammered by COVID-19 as their stock price dropped from $85 to $40 a share in just under a week.

Key points: Lamb Weston is a classic stock for the history books when looking back on this COVID-19 crisis and its impact on the stock market. The company had been preforming extremely well, as their stock price steadily rose until the pandemic hit. The company lost almost 60% of their value in just over a week. They have swiftly rebounded since.

Even though they lost this value there was nothing financially wrong with the company. Through all the uncertainty, one thing remained certain. During a global pandemic one of the only certain things is that people are still going to need to eat. Lamb Weston is a potato company. They have contacts with some of the largest fast food and grocery stores in America. Their supply chains are solid and their growing fields are some of the best in the industry. 

Over the holding period for this stock their short interest has dropped by more than 60%. Hedge funds began dumping this company as they have beat street estimates the last two quarters. 

They have long standing contracts with Burger King, Wendy’s, and McDonalds. These contracts allowed the company to have stable income during the pandemic. The increase in grocery store revenue also drove Q1 2021 revenue higher than street estimates. While their revenue did drop, it came in well over street estimates which resulted in a nice price bump for the stock. 

The company is incredibly well positioned to expand on these beats. Their international business is set to expand, as they had to take a step back due to COVID restrictions. With this expected revenue bump the company is confident they will be exceeding pre COVID output by the end of 2020.

What has the stock done lately?

Since Lamb Weston was added to the portfolio in late March the company is up over 40%. It has cooled off lately as during the turbulent last 3 months, and the stock is only up 3%. As stated earlier short interest in the stock has dropped over 60% as hedge funds move away from the stock.  

Past Year Performance: LW has dropped 16% YTD, but since the COVID-19 dip in March the company is up over 40%. The company posted an EPS and Revenue beat in their Q1 2021 results. While EPS is expected to decrease 20%, is it still expected to beat street estimates which will poise the company to continue their upwards growth.

Source: FactSet

My Takeaway

Lamb Weston has been an unbelievable performer for the AIM Small Cap fund. The company has grown 40% since being added to the portfolio in March. Regardless of what uncertainty still remains over the next few months, consumer behavior towards food companies is still overwhelmingly positive. The company still has not reached their pre-COVID price levels, and with a little more of a holding period this company could be an absolute all-star for the fund.

Source: FactSet