NYSSA Student Research
This report is published for educational purposes
only by students competing in the
NYSSA Investment Research ChallengeTM.
Industry: Processed & Packaged Goods
Tasty Baking Company
Ticker: TSTY Recommendation: SELL
Important disclosures appear at the back of this report
TM Investment Research Challenge is a trademark of The New York Society of Security Analysts, Inc.
©2007 The New York Society of Security Analysts, Inc.
Price: $9.00 (as of 3/13/07) Price Target: $7.87
Earnings/Share Mar. Jun. Sept. Dec. Year P/E Ratio
2005A $0.06 $0.11 $0.04 $0.02 $0.23 40.4x
2006A 0.12 0.14 0.06 0.20 0.52 23.5*
2007E 0.12 0.13 0.09 0.07 0.40 22.7
2008E 0.12 0.11 0.12 0.08 0.42 21.4
*P/E Adjusted for one-time charge of $1.6 million
Highlights
Date: March 16, 2007
Philadelphia, PA
www.tastykake.com
TEAM G
! Multiple valuation models point to SELL rating: TSTY’s shares are currently overvalued according
to our discounted cash flow and relative valuation models, which assume a cost of equity of 9.7%, a
five-year CAGR of 1.25% and a terminal value growth rate of 4%. Our 12-month price target of $7.87
represents a 13% discount to the current price of $9.00 per share.
! TSTY missed 4Q 2006 EPS estimates: On March 1, 2007, TSTY posted 4Q results that missed
estimates calling for $0.10 per share, excluding a one-time gain of $1.6 million related to a terminated
option on its corporate office and distribution center. TSTY drastically missed EPS estimates by ten
cents per share with no growth from core operations. YOY volume for 4Q was down 17%, while gross
and net sales were down 12% and 9%, respectively.
! Management’s inability to implement its strategic transformation plan s ...