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Diamond Foods: It Ain't Just Peanuts


As one of the few nontech companies to go public last year, Diamond Foods (DMND) -- a distant No. 2 in snack nuts to Kraft Foods' (KFT) Planter's line -- is off to a strong start, rising from 15 in November to 20 by Jan. 25. "Diamond's Emerald nuts, sold mainly in California, are well on their way to becoming a national brand," says Stephen Cootey of Prides Capital, the largest investor in Diamond, with 5.5%. Cootey says Diamond's potential is enormous. Because it's tiny, with only 5% of the $2.6 billion snack-nut market vs. Planter's 50%, Diamond's products are sold only in supermarkets, rather than the big outlets. But that's changing: Emerald is being tested at 500 Wal-Mart Stores (WMT), and Cootey expects Diamond sales will jump when big chains (like Sam's Club and Costco (COST)) start selling Emerald. That's the reason he isn't fazed by Diamond's high price-earnings ratio: 25 times the 2006 (ending June 30) forecast of 78 cents a share. Estimates for 2007 run from $1.29 to $1.38. Meanwhile, Diamond's CEO Michael Mendes expects this year's 30-second Super Bowl ad to jack up sales the way last year's spot did.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

By Gene G. Marcial


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