JPMorgan Says Lamb Weston May Top Estimates, But Stock Gains Limit Upside

JPMorgan anticipates Lamb Weston (LW) will report a Q1 fiscal 2026 earnings beat on September 30, primarily driven by gross margin, and considers current Q2 estimates too low. However, the analyst maintains a Neutral rating, noting that the stock's recent 13% surge likely prices in much of the expected upside, and margin pressures may persist into CY26 due to upcoming contract renegotiations, despite past headwinds easing.

Analysis

JPMorgan anticipates Lamb Weston (LW) will report a first-quarter earnings beat on September 30, driven by favorable gross margins, and suggests that current estimates for the second quarter are likely too low. Despite this positive near-term outlook, the analyst maintains a Neutral rating on the stock. This cautious stance is predicated on the stock's recent performance; a 13% increase over the past two months suggests the market has already at least partially priced in the expected strong Q1 results, mirroring a prior 10% stock increase following 25% earnings beats in Q3 and Q4 of fiscal 2025. While the analyst notes the worst headwinds to sales and margins appear to have subsided, significant future risk remains. Specifically, margin pressure could re-emerge from upcoming contract renegotiations for calendar year 2026, which are expected to involve price concessions and affect approximately one-third of the company's customer contracts.

Key Decisions for Investors

• Given the stock's 13% rally over the past two months, investors should recognize that the anticipated Q1 earnings beat may be largely priced in, potentially limiting significant upside immediately following the report.
• It is critical to scrutinize management's commentary during the upcoming earnings call for guidance on CY26 contract renegotiations, as potential price concessions on one-third of customer contracts represent a key risk to future margin stability.
• Consider that current Q2 consensus estimates may be conservative, as the analyst's view that they are 'too low' could provide a forward-looking catalyst if the company's guidance exceeds market expectations.