Lamb Weston Holdings, Inc. (LW): A Bull Case Theory

We came across a bullish thesis on Lamb Weston Holdings, Inc. on Value Dont's Lie's Substack. In this article, we will summarize the bull’s thesis on LW. Lamb Weston Holdings, Inc.'s share was trading at $53.22 as of 19^th June. LW’s trailing and forward P/E were 20.87 and 14.71, respectively, according to Yahoo Finance.

Lamb Weston (LW), the leading frozen potato producer in North America and second globally behind McCain Foods, experienced a steep 30% share price decline in July 2024—from $80 to $53—following weak Q4 FY24 results. Originating as a 2016 spin-off from Conagra to separate the commercial potato business, LW derives the bulk of its revenue from restaurant and foodservice sales, with McDonald’s alone contributing 14% in FY24.

The Q4 miss, marked by a 5% sales decline and a 40% drop in adjusted EPS, stemmed from falling global restaurant traffic and softening frozen potato demand. This supply-demand imbalance, exacerbated by industry-wide and company-specific capacity expansions, is expected to persist through FY25. LW’s capex surged from $290 million to $930 million over the past three years, with an additional $850 million planned for FY25, further crowding out capital allocation flexibility. However, aside from the pandemic dip, LW has demonstrated stable and growing cash flows.

With capex expected to normalize in FY26, the company could generate around $400 million in annual free cash flow ($2.78/share), implying a current FCF multiple of ~23x. Though not deeply undervalued, every $100 million drop in capex could add $0.70/share in FCF.

While restaurant sales trends are weak, aggressive promotions might help traffic recover, indirectly benefiting LW. Still, questions remain about whether FY25 guidance reflects the worst or if further downside is possible. Peers trade at 10–11x EBITDA, implying fair value near $78/share. For now, the market seems to have priced in the current risks, but FY26 could be a turning point.

Previously, we covered a bullish thesis on Lamb Weston (LW) by Quick Value in Sept 2024, highlighting its strong market position and upside from post-FY25 capex normalization. The stock has depreciated by approximately 15.55% since then due to weak Q4 results. Value Don’t Lie shares an identical view but emphasizes current market expectations.

Lamb Weston Holdings, Inc. is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 51 hedge fund portfolios held LW at the end of the first quarter, which was 47 in the previous quarter. While we acknowledge the risk and potential of LW as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk. If you are looking for an extremely cheap AI stock that is also a major beneficiary of Trump tariffs and onshoring, see our free report on the best short-term AI stock.

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