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Investing in Agribusiness: Will This Major Food Company Be Bought Out?

Commodities / Agricultural Commodities Jul 19, 2011 - 04:10 PM GMT

By: Eric_McWhinnie


Ralcorp Holdings Inc. (NYSE:RAH) produces a variety of store brand foods that are sold under the individual labels of various grocery, mass merchandise, and drug store retailers. Their products include everything from Post Raisin Brand to NutCracker Mixed Nuts. In May, we discussed how Ralcorp’s share price had been sizzling, but wondered if it could maintain its rally. Recently, Ralcorp has been back in the news, but are shares popping?

In May, shares of Ralcorp popped from $70 to $87 in just a few days, because two buyout bids by ConAgra (NYSE:CAG) became public. Shares remained near $90 for most of May, but have gradually drifted lower to $86. Last Thursday, Ralcorp announced that it’s planning to spin off its Post Foods cereal business, after failing to find a buyer for it. Ralcorp acquired Post Cereals in 2008, but the spin off could come within the next 4 to 6 months. The company looks to be positioning itself to attract other bidders for Post Foods, which should help Ralcorp fend off more potential buyout offers. BB&T Corp (NYSE:BBT) predicts the spinoff move will increase the number of bidders and increase shareholder value. Although Post Cereals accounted for a quarter of Ralcorp’s sales last year, shares could receive another boost from higher buyout offers.

The chart below shows the gradual decline of Ralcorp’s stock as the ConAgra buyout offers lose their buzz.

Investors still holding Ralcorp shares should be hoping for more buyout offers. Last Friday, Ralcorp announced reduced guidance. The company now expects to earn between $1.13 to $1.18 per share for the third quarter. This is a decrease from previous expectations of $1.37 per share. Ralcorp also dropped its full year guidance range to $5.20 -$5.35, down from $5.45 to $5.55. Ralcorp competes with other big name companies such as General Mills (NYSE:GIS) and Kellogg (NYSE:K). The company also competes with Kraft (NYSE:KFT), which was just named one of the top five stocks of 2011 by WSJ.

Investors looking for agricultural plays should also consider Market Vectors Ag ETF (NYSE:MOO), PowerShares DB Agricultural (NYSE:DBA), and ELEMENTS MLCX Grains Index (NYSE:GRU).

For more analysis on our support levels and ranges for gold and silver, consider a free 14-day trial to our acclaimed Gold & Silver Investment Newsletter.

Disclosure: No positions.

By Eric_McWhinnie

Wall St. Cheat Sheet : Only days after the S&P 500 crashed to the depths of hell at 666, the Hoffman brothers launched Wall St. Cheat Sheet: one of the fastest growing financial media sites on the web. Like a samurai, our mission is to cut through the bull and bear shit with extraordinary insights, a fresh voice, and razor-sharp wit. We provide the highest quality education and information for active investors, financial professionals, and entrepreneurs.

© 2011 Copyright Eric McWhinnie - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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