Analysts say that they expect that Proctor & Gamble will decide to not renew their contract with Menu Foods to manufacture their Iams loaf product (their cuts and gravy contract has already ended) at the end of the year. This will definitely mean bad news for Menu Foods since Proctor & Gamble accounted for an estimated 21% of Menu Foods’ business in 2006.
Amidst all of this and being the name behind the largest pet food recall in history, Menu Foods Income Funds lenders still believe in their company.
More analysis on Menu Foods after the jump.
In fact, the pet food manufacturers credit agreements negotiated on May 15, 2007 suggest its lenders factored in the possibility that it could lose Proctor & Gamble altogether, according to Cormark Securities analyst Aleem Israel.
Mr. Israel has a 12 month price target of $1.60 for Menu Foods units and a reduce rating. However, three or four years out, he sees much more value. High takeover speculation and other deals in the consumer staples sector suggest a takeout in the $3.45 to $5.20 per unit range, he added.