On Wednesday, Wells Fargo adjusted its financial outlook on Performance Food Group (NYSE:PFGC), raising the stock's price target from $83.00 to $88.00, while maintaining an Overweight rating. The revision comes after Performance Food Group announced the completion of its acquisition of Cheney Bros.
The transaction, which was finalized earlier than anticipated, is expected to bring about $50 million in run-rate synergies by the third year and is seen as accretive to the adjusted earnings per share (EPS) by the end of the first fiscal year.
Performance Food Group's acquisition of Cheney Bros., a company with approximately $3.2 billion in trailing twelve months revenue, is now complete. Cheney operates five distribution centers (DCs) across Florida and North Carolina.
With this deal, Performance Food Group anticipates not only immediate financial benefits but also long-term growth opportunities. The purchase multiple stands at 13.0x before synergies and 9.9x after accounting for the anticipated $50 million in synergies.
The company's management has signaled that the updated guidance may provide additional room for financial performance to exceed expectations in fiscal year 2025. The acquisition is seen as a strategic move, with Cheney Bros. being a high-quality asset in a strong growth market. It also has excess capacity in key areas that Performance Food Group is expected to utilize effectively.
The deal is characterized as an attractive "tuck-in" acquisition, with the potential to be highly accretive for Performance Food Group. The company is set to benefit from revenue synergies in private brands and cost synergies across procurement, operations, and logistics. These factors contribute to the analyst's bullish stance on the stock's future performance.
In other recent news, Performance Food Group (PFG) has made significant strides in its financial growth strategy. The company recently issued $1.0 billion of 6.125% Senior Notes due 2032, and entered into an Amended Credit Agreement, boosting its revolving commitments to $5.0 billion. These moves are part of PFG's recent developments, which also include a robust 18.4% year-over-year growth in adjusted EBITDA for the fourth quarter of fiscal year 2024.
The proceeds from the Senior Notes, along with borrowings under the Amended Credit Agreement, are intended to finance the acquisition of Cheney Bros, Inc. Analyst firms Piper Sandler and Truist Securities have responded positively to these developments, raising their price targets for PFG to $87.00 and $88 respectively.
In the fiscal year 2025, PFG projects net sales to be between $60 billion and $61 billion, with adjusted EBITDA ranging from $1.6 billion to $1.7 billion. These figures underscore PFG's commitment to its growth strategy and financial performance. The company's expansion strategy is further evidenced by its acquisition of José Santiago, a broadline foodservice distributor in Puerto Rico.
InvestingPro Insights
Performance Food Group's recent acquisition of Cheney Bros. aligns well with its position as a prominent player in the Consumer Staples Distribution & Retail industry, as highlighted by InvestingPro Tips. The company's strong financial performance is evident in its impressive 42.2% price total return over the past year and a robust 27.29% return in the last three months, according to InvestingPro Data.
The acquisition is expected to be accretive to earnings, which is crucial given that PFGC is currently trading at a high P/E ratio of 28.03 relative to its near-term earnings growth. This valuation metric underscores the importance of the anticipated synergies from the Cheney Bros. deal to justify the company's current market position.
Despite the high P/E ratio, PFGC is trading at a low revenue valuation multiple, which could indicate potential upside if the company successfully integrates Cheney Bros. and realizes the projected synergies. The company's liquid assets exceeding short-term obligations further support its financial stability as it undertakes this significant acquisition.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Performance Food Group, providing deeper insights into the company's financial health and market position.
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