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Horizon's Brimming Organic Milk Pail

The big supermarkets have been allotting more shelf space to organic food, and that's just how Horizon Organic Holding (HCOW) envisions that the organic market will evolve. The products of Horizon, which include organic milk, cheese, yogurt, and fruit, are in 45% of all markets in the U.S., says Carole Buyers, an analyst at Tucker Anthony Sutro Capital Markets. Horizon's growth prospects remain strong, she says, because of new products, expanding organic dairy sections at the nation's supermarkets, and rising prices of nonorganic dairy products. She rates the stock, now trading at 8, a "strong buy." Buyers says the stock is worth 11, based on 11 times cash flow.

With the stock trading below that of its peers and its earnings gaining momentum, the stock has become an attractive buyout target, says Buyers. "While we don't have reason to think an acquisition is imminent, other natural-organic beverage and dairy companies have been acquired at much higher multiples," notes Buyers. She says Horizon is worth about 15 in a buyout, or 16.8 times cash flow. One possible buyer, says Buyers, is Suiza Foods, the largest U.S. maker of dairy products. It also makes fruit juices, bottled water, and coffee. Suiza, which owns a 12% stake in Horizon, says it doesn't comment on its acquisition plans. By Gene G. Marcial

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