Lifeway Food's Top-Line Growth Story Possibly Playing Out Earlier Than D.A. Davidson Expected

D.A. Davidson has reiterated its Buy rating and $13 price target on Lifeway Foods, Inc. (NASDAQ: LWAY) saying that earnings growth is coming earlier than expected.

The company's second quarter EPS came in at $0.14, $0.08 above D.A. Davidson's estimate and $0.10 above consensus. The outperformance was attributed to a lower tax rate, lower milk prices, fewer discounts, lower packaging costs, and greater production efficiencies.

Net revenue rose 4.4 percent to $31.1 million, and volume grew 4.6 percent as kefir sales benefited from additional private label volume at Kroger and Wegmans.

"We viewed Lifeway as a top line growth story, with FY17 being the year the company begins to concentrate more on leveraging sales. It appears our thesis may be playing out earlier than expected," analyst Eric Gottlieb wrote in a note.

The analyst is encouraged by the lower discounting level and investments back into the business in the form of the WI plant and increased advertising.

Gottlieb raised his FY16 EPS estimate to $0.40 from $0.24 and FY17 EPS estimate to $0.51 from $0.50. However, the analyst cut his FY16 revenue estimate to $130.4 million from $133.7 million due to lower mix and a lower price-driven volume expectation.