Barclays analysts raised the price target on Lamb Weston (NYSE:LW) to $74 from $70 while maintaining an Overweight rating, following the company’s reported Q1 beat. The analysts highlighted that Lamb Weston’s recent actions, including the permanent closure of its Connell, WA facility and temporary reductions in production across its North American plants, are expected to bring the company’s potato processing capacity utilization to a healthier range of low to mid-90%. This move comes in response to weaker traffic in the quick-service restaurant (QSR) sector.
Barclays also believes that Lamb Weston’s two main private competitors are likely operating within a similar utilization range, which could maintain rational pricing discipline across the industry. Despite some increased trade spending to win and retain key customers, the overall capacity management should help protect pricing.
Should restaurant traffic trends improve meaningfully, the bank anticipates that the combination of rising demand and the strategic supply reductions across the industry could help close the supply/demand imbalance more quickly. This, in turn, would likely help processors like Lamb Weston retain pricing power, a trend historically seen in the industry.