Position Close Update: Snyder’s-Lance Inc. (LNCE)

 | Apr 11, 2018 09:45AM ET

Snyder’s-Lance Inc. (LNCE: $50/share) – Closing Short Position – up 42% vs. S&P up 34%

Snyder’s-Lance was originally selected as a economic earnings (despite rising GAAP net income), competitive disadvantages, and overly optimistic expectations baked into the stock price.

The largest risk to any short thesis is what we call “stupid money risk .“ We noted in our original report that an acquisition could occur, despite LNCE being overvalued, as the snack food market has undergone consolidation in recent years. On 3/23/18, Campbell Soup Company (NYSE:CPB) completed an acquisition of LNCE that will earn a paltry 3% ROIC ($138 million NOPAT from LNCE divided by the $4.9 billion acquisition price). The 3% ROIC on the deal will depress CPB’s 14% ROIC and economic earnings. This deal destroys value for CPB shareholders.

During the 927-day holding period, LNCE underperformed as a short position, rising 42% compared to a 34% gain for the S&P 500. Prior to the acquisition announcement, LNCE was outperforming as a short and was up just 12% while the S&P 500 was up 35%. Due to the acquisition, we have closed this position and removed it from our Focus List – Short Model Portfolio .

Figure 1: LNCE vs. S&P 500 – Price Return