BB&T Downgrades Ralcorp Holdings To Hold

According to BB&T, Ralcorp Holdings takeout could yield $100, but the potential upside is increasingly limited. It is downgraded to Hold.

BB&T said that on May 4, Conagra issued a statement saying that it had previously offered $82/share in a cash/stock bid for Ralcorp, but that it had received no response from RAH management. "It raised its offer to $86 in an all-cash bid and noted that it expected the transaction to be accretive within the first year and that it anticipated $250M in savings. Based upon our projection of 2011 year-end debt for RAH and our EBITDA projection, the offer values RAH at 8.3x. Based upon net debt at the end of Q1, the price tag values the company at 8.5x. We have downgraded the shares to Hold (2), as they are just shy of our previous $91 price target. Should the company secure a $100 takeout price, that would imply a little more than 10% upside, but we believe that is highly speculative at this time. The shares have appreciated 38.1% YTD as compared to 5.7% for the market and we believe it is prudent to move to a Hold (2) rating at this time."