Its been a tough year for investors in Dairy Crest (LSE: DCG). Indeed, shares in the maker of Cathedral City cheese and Frijj milkshakes has seen its share price fall by 27% since the turn of the year. This does not compare favourably to sector peers Unilever (LSE: ULVR) and ABF (LSE: ABF), which have gained 5% and 9% respectively year-to-date.
However, does Dairy Crest now represent the best value for money of the three stocks? Or are its larger peers worth buying ahead of it?
A Muted Update
Todays update from Dairy Crest was generally in-line with expectations, but showed that the food markets remain very challenging. While the companys biggest brand, Cathedral City, saw its market share rise, continued pressure on household budgets meant that the companys portfolio of brands grew by just 4% year-on-year and, furthermore, it expects this rate of growth to persist over the short to medium term. In addition, the company will close two plants in order to cut costs moving forward.
Looking Ahead
With Dairy Crest expected to report a fall in earnings of 7% in the current year, investors could be forgiven for being rather downbeat on the companys prospects. However, it is due to bounce back strongly next year, when the bottom line is forecast to grow by an impressive 13%.
Furthermore, Dairy Crest now offers exceptional value for money. For example, it currently trades on a price to earnings (P/E) ratio of just 10.2 and, when combined with its earnings growth potential, this equates to a price to earnings growth (PEG) ratio of just 0.7.
Sector Peers
Of course, ABF and Unilever have a much wider variety of brands and have a much bigger global footprint than Dairy Crest. Therefore, their valuations are bound to be at a premium to Dairy Crests. In the case of Unilever, that seems to be fairly reasonable: it has an enviable position in emerging markets and a stable of exceptional brands that have vast potential. So, a P/E ratio of 20 seems to be well-worth paying for especially when earnings growth is expected to be 9% next year.
However, ABFs P/E ratio of 26 seems excessive given that it is expected to grow the bottom line at the slowest pace of the three stocks. Indeed, earnings are due to be only 4% higher next year for ABF and, moreover, it is the least attractive when it comes to dividend yield, too.
Income Potential
Thats because, while Dairy Crest and Unilever have yields of 5.6% and 3.5% respectively, ABFs yield is just 1.3%. So, while Dairy Crest and Unilever offer a potent mix of income, value and growth potential, ABF appears to be expensive and offers little in the way of growth or income prospects. As a result, Dairy Crest and Unilever, rather than ABF, seem to be the two companies well-worth buying of the three.
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Peter Stephens owns shares of Dairy Crest Group and Unilever. The Motley Fool UK owns shares of Unilever. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
