Treehouse Execution Remained Strong in Q3; Ebro Deal to Augment Scale in Pasta; Shares Undervalued

Shares of no-moat Treehouse continue to be besieged by uncertainty surrounding its competitive positioning and remnants of previous operational missteps. As such, heading into its third-quarter earnings print, we think investors were primarily looking for evidence of management’s ability to execute and generate cash amid a dynamic pandemic environment. We view the results, which were in line with our expectations on the top and bottom lines, as encouraging, and a testament to the operational and commercial infrastructure that the new management team has built. Separately, the firm announced its intent to acquire most of Riviana Foods’ (a subsidiary of Ebro) branded pasta portfolio. We take a constructive view of the deal, as it aligns with the strategic direction in which management is looking to take its pasta business (and other center-of-store categories). Still, it shouldn’t have a material impact on our $54 fair value estimate, and the current risk/reward proposition in the shares is compelling to us.