Are Investors Missing Value in Flowers Foods After Recent Strategic Partnerships?

• Curious if Flowers Foods offers real value at today's prices? You're not alone, so let's dig in together and see what the numbers tell us.
• The stock has moved up 1.5% over the last week, but is still down more than 11% for the past month and nearly 49% over the last year. This may indicate changing market sentiment and a possible shift in risk perception.
• Recent industry news includes evolving consumer demand for healthier products and inflationary cost pressures, both of which have played a role in how investors are viewing food manufacturers. Flowers Foods has also made headlines with strategic partnerships aimed at diversifying its product range and distribution channels.
• By the numbers, Flowers Foods currently scores a 5 out of 6 on our valuation check. This suggests it is undervalued by most traditional measures. We'll break down the classic valuation approaches next, and later cover a more holistic way to assess value at the end of this article.

Find out why Flowers Foods's -49.2% return over the last year is lagging behind its peers.

Approach 1: Flowers Foods Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow (DCF) model estimates the value of a company by projecting its future cash flows and then discounting them back to today's value. This provides investors with a snapshot of what the company could be worth.

For Flowers Foods, the DCF approach uses current and estimated future cash flow data to build its projection. Currently, Flowers Foods generates Free Cash Flow of $314 million. Analysts provide estimates for annual cash flows over the next few years, with projections indicating Free Cash Flow may be around $232 million by the end of 2027. From there, projections are extrapolated and in 2035, Free Cash Flow is estimated to reach $210 million, all in US dollars.

Based on these cash flow projections and the 2 Stage Free Cash Flow to Equity model, the intrinsic value per share is estimated at $21.27. At today's prices, this implies the stock is roughly 49.5% undervalued when compared to the DCF-derived value.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Flowers Foods is undervalued by 49.5%. Track this in your watchlist or portfolio, or discover 917 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Flowers Foods.

Approach 2: Flowers Foods Price vs Earnings

The Price-to-Earnings (PE) ratio is a popular valuation metric for profitable companies like Flowers Foods because it links the company’s current share price to its earnings. This offers a straightforward gauge of how much investors are willing to pay for each dollar of profits. For companies that are consistently profitable, the PE ratio reflects not just current performance but also investor expectations for future growth and risk.

Growth outlook and risk profiles play a key role in deciding what a "normal" or "fair" PE ratio should be. Companies with strong growth prospects or lower risk often command higher PE ratios, while those with slower growth or greater risk usually trade at lower multiples. It is important to consider both company-specific and market-wide factors when interpreting this metric.

Currently, Flowers Foods trades at an 11.7x PE ratio. This is well below the food industry average of 21.0x and also below the average of its peers at 20.9x. Simply Wall St’s proprietary "Fair Ratio" for Flowers Foods is calculated at 12.3x, taking into account elements such as earnings growth, profit margins, scale, industry, and risk factors unique to the company. Unlike standard industry or peer comparisons, the Fair Ratio is tailored to the business’s specific circumstances and provides a clearer view of what is justified for Flowers Foods given its fundamentals.

With a current PE ratio of 11.7x compared to a Fair Ratio of 12.3x, the difference is less than 0.10. This suggests that based on this metric, Flowers Foods is neither meaningfully undervalued nor overvalued, but valued about right relative to its fundamentals.

Result: ABOUT RIGHT

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1439 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Flowers Foods Narrative

Earlier we mentioned that there's an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is a simple, powerful tool that lets you capture your perspective on a company by setting your own assumptions for fair value and future estimates of revenue, earnings, and margins. Narratives link that story to a financial forecast, which then automatically calculates a fair value for the stock. This makes it easy for you to see if Flowers Foods’ current price aligns with your view of its future, and helps decide whether to buy, hold, or sell.

You do not need to be a finance expert. Narratives are easy to use on Simply Wall St’s Community page, relied upon by millions of investors to track their reasoning as new information, such as earnings or news, surfaces. Narratives are dynamic, so when the facts change, your story and fair value update instantly. For example, some investors see Flowers Foods as worth as little as $12.00 if acquisitions fall short and margins shrink, while others expect a rebound to $20.00 thanks to product innovation and margin recovery. Narratives let you easily compare your thinking to the crowd, so you can invest with greater clarity and confidence.

Do you think there's more to the story for Flowers Foods? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com