Lamb Weston: Is the King of Spuds a Buy or a Dud for 2026?

Key Points

• Lamb Weston reaffirmed its guidance and capital return outlook, driven by solid FQ1 results.
• Buybacks reduce the count substantially each quarter and are expected to continue for the foreseeable future.
• Institutional trends indicate the group is buying aggressively, with shares near long-term lows.

Lamb Weston’s NYSE: LW FQ1 report and guidance update affirm that the king of spuds is no dud. This company reaffirmed its guidance, which in turn reaffirms the cash flow and capital return outlook, and the capital return is solid. This FMCG (fast-moving consumer goods) company pays a substantial dividend and buys back shares aggressively, providing leverage for long-term investors and potential for a double-digit total return over time. 

Lamb Weston’s dividend is attractive enough for investment in its own right. The stock yields 2.5% in early October and is accompanied by a positive outlook for distribution increases. The payout ratio is relatively high compared to the earnings outlook, at about 60%, but not an insurmountable level, and is in alignment with its industry. The more critical ratio is the cash flow payout ratio, which was only 17% in Q1, low enough for investors to assume the double-digit distribution CAGR will be sustained. 

The buybacks are substantial. The company reduced its share count by 2% in F2025 and is on track to reduce it by a comparable or larger amount in F2026. The pace topped 3.5% in FQ1, and there is sufficient capital left under the current authorization to continue at a similar pace in upcoming quarters. 

There are no red flags on the balance sheet. The balance sheet highlights at the end of Q1 include reduced assets offset by a reduction in liabilities, low leverage, and improved equity. Equity increased despite the decrease in share count and additional distributed capital. 

Lamb Weston Sustains Growth in Tough Environment

Lamb Weston’s FQ1 was solid, with revenue growing approximately 0.5% to outperform MarketBeat’s consensus estimate. The $1.66 billion in revenue was driven by a 6% volume increase and 1% impact from FX translation, offset by a 7% decline in price. 

The price decline is significant but not unexpected. It is tied to the closing of its Washington plant and the discontinuation of products made there. The negative impact is not expected to persist and is anticipated to lead to improved margins over time. Segmentally, International markets were strongest, growing by 4% under the influence of FX translation, while the North American market contracted by 2%. 

The margin news is mixed but otherwise favorable to shareholders. The company experienced margin pressure in virtually all comparisons, but the declines were less than expected, linked to one-offs and price-mix changes related to discontinued product lines. The key point is that GAAP of 74 cents exceeded MarketBeat’s reported consensus by 21 cents, or about 4000 basis points, which improves the outlook for cash flow and capital returns. 

The guidance is also favorable. The company reaffirmed its revenue outlook, with its midpoint near the consensus target. The forecast assumes slight growth and sufficient earnings to maintain financial health while investing and returning capital to shareholders. 

Analysts Cap Gains for LW: Institutions Are Buying the Value

Analysts' sentiment is tepid for LW stock and capping gains in 2025. The trends reveal diminished coverage, the rating falling to Hold, and the price target declining. Although the consensus assumes a 12% upside in early October, the trend is leading to the low-end range. However, the low-end range is likely to serve as a floor for the action, as it coincides with a critical support target and institutional buying. 

The institutions own about 90% of this stock and provide a solid support base. They have been buying on balance all year and will likely continue to do so due to the low value. LW stock trades in the low teens relative to its 2030 EPS forecast, suggesting its stock price could increase by 50% by then.