Treehouse: Private Label Secular Growth, Subordinate Positioning Along Value Chain Inhibits Moats

We’re initiating coverage of Treehouse Foods, the largest private label (PL) consumer goods manufacturer in the U.S., with a no-moat rating. Functioning essentially as a contract manufacturer, we don’t believe it enjoys enough clout along the supply chain to support sustainable economic profit. Nevertheless, we believe there are several industry tailwinds that should return the firm to top-line growth, which, together with margin expansion facilitated by structural business changes after years of restructuring, underpin our $54 fair value estimate. At current trading levels, we see an adequate margin of safety in the shares for prospective investors.