TreeHouse Focusing on Execution Amid Activist Noise; Shares Fairly Valued

The backdrop heading into no-moat TreeHouse’s fourth-quarter earnings was fraught to say the least. With Jana Partners, an activist investor, announcing a 7.5% stake less than 24 hours prior, and revealing plans to nominate board members and compel the firm to explore strategic options (including an outright sale), shares were up over 20%, reaching their highest levels in months. Ultimately, the results were commendable (ahead on revenue and in-line earnings relative to FactSet consensus), and the firm issued healthy guidance that implies recent strategic initiatives continue to bear fruit. Management has taken a nonadversarial approach to Jana’s overtures, vowing to engage in constructive dialogue and consider the activist’s proposals on their merits. We think this approach is prudent, and ultimately, consistent execution is the key to value creation for this kind of business, in our view. If Jana’s active stake fuels more urgency in this regard, then we have no qualms. Our $54 fair value estimate should not materially change beyond time value after rolling our model, and after the stock’s meaningful rally, we now see it as fairly valued.