Dean Foods beverages - milk, tea
Credit Suisse downgraded Dallas-based Dean Foods’ stock to underperform.

NEW YORK — Although the dairy industry cycle turned favorable for Dean Foods Co. this year, underlying challenges in the industry have not gone away. As a result, Credit Suisse on Nov. 10 downgraded Dallas-based Dean Foods’ stock to underperform.

Robert Moskow, Credit Suisse
Robert Moskow, an analyst with Credit Suisse

“We fear that consensus estimates will go lower from here as the dairy cycle corrects itself and farmers cut back on production to boost dairy prices,” Robert Moskow, an analyst with Credit Suisse, wrote in a Nov. 10 research note. “As a result, we think Dean’s stock has less-than-average upside over the next 12 months in relation to our food stock coverage.”

During the third quarter of fiscal 2015, ended Sept. 30, Dean Foods posted net income of $20,233,000, equal to 22c per share on the common stock, up from the same quarter of the previous year when the company recorded a loss of $15,972,000.

Sales for the quarter fell 14% to $2,033,693,000 when compared with the previous year.

Mr. Moskow acknowledged several risks to Credit Suisse’s downgrades, including the possibility that the research firm may be overestimating the speed at which dairy prices will turn higher, and the fact it may be underestimating the positive impact of management’s strategic shift in its selling and marketing efforts toward a national brand and higher price realization.

“Dean’s market share improved 10 b.p.s. sequentially in 3Q despite a 9% increase in its branded price premium over private label,” Mr. Moskow said. “However, we have trouble believing that these efforts will fully insulate the business from what has historically been such a volatile industry.”