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Montreal-based dairy company SaputoChristinne Muschi/The Globe and Mail

When the prices of your products are slumping, but your stock is at an all-time high valuation, well, you just have to milk the situation for all it's worth.

Like Saputo Inc., the dairy giant whose shares hit an all-time high Thursday, and which are trading at the top of their historical range on a price-to-earnings basis – this, despite a trough in milk and cheese prices. Some analysts are saying "the worst is over" in dairy pricing, which means many companies should envy Saputo's "worst" market conditions.

They should also envy the love investors are showing for Saputo's shares, which at Friday's close of $43.16 now trade around 23 times forward earnings, or nearly 14 times the next 12 months' analyst-forecast EBITDA – earnings before interest, taxes, depreciation and amortization. The stock is as rich as heavy cream – and it helps explain why analysts who have plenty of nice things to say about the company are having trouble calling it a "buy," and why one skeptical analyst is particularly sour on the shares.

Saputo, certainly, has provided investors for reasons to buy in. The company's first-quarter report, released earlier this month, revealed a 29-per-cent jump in earnings a share, beating analysts' consensus, and an 11-per-cent increase in the dividend. All three segments (Canada, the United States and international) beat expectations, analyst Michael Van Aelst of TD Securities Inc. said in his report on the quarter. (Saputo is the biggest cheese maker in Canada, with about a third of the market, but it gets about half of its revenue and profits from the United States.)

It is possible, however, that investors are buying in to a dairy-price recovery that hasn't yet emerged. Mr. Van Aelst is one of three remaining "buys" on Saputo out of 11 analysts, as the company's stock has exceeded the $42.33 average target price. Mr. Van Aelst's $45 target price is the highest, tied with Mark Petrie of CIBC World Markets Inc., another "buy," and Irene Nattel of RBC Dominion Securities Inc., who has a "sector perform" rating on the shares.

Saputo, Mr. Van Aelst says, has been delivering "decent" volume growth while succeeding in passing along input-cost increases to customers. That, combined with Saputo's track record of acquisitions, leaves the company "well-positioned to set new profitability records," other than in Canada, once commodity prices recover, "no later than [fiscal] 2018."

Mr. Petrie of CIBC acknowledges Saputo's earnings multiples are at a "significant premium" to the historical average, and also at a premium to the S&P/TSX Composite Staples index. He argues that multiples in the S&P 500 Staples index, a better comparison for Saputo because of its mix of companies, have expanded recently even faster than Saputo's.

Investors are also placing faith in Saputo continuing its successful deal making (which have averaged more than one a year for its 18 years as a public company). Ms. Nattel notes the company's net debt of just $1.25-billion, versus her forecast of $975-million in cash flow from operations, means the company is well positioned to keep buying. "Saputo remains committed to acquisitions of all sizes, and will remain disciplined in its pursuit of potential transactions," she writes.

Deconstructing one analyst's target price, however, can help investors understand what has to keep going right for Saputo to deliver a meaningful return. Keith Howlett of Desjardins Securities Inc., has just increased his earnings-per-share forecast for the current year to $1.83, from $1.74, and to $2.04 from $1.90 for the year that ends March 31, 2018. He applies a multiple of 20 times the next four quarters' earnings, and adds another $5 to cover the potential of acquisitions yet to be announced. And this adds up to $42 (and a "hold" rating), below Friday's closing price.

To get another sense of what deals mean to the Saputo model, consider the analysis of the true outlier among Saputo analysts, Erin Lash of Morningstar, who has a "fair value" on the shares of $27. That gives Saputo the lowest possible one-star rating in the Morningstar stock-rating system.

Ms. Lash's model calls for annual sales growth of 2 per cent to 3 per cent, in line with North American GDP growth over the period (versus the company's acquisition-driven 20-per-cent annual revenue growth since 1997). Ms. Lash notes that since the company reports in Canadian dollars, but derives so much of its business from the United States, its results have been aided by weakness in the loonie – but by exactly how much, she does not know.

"The company doesn't provide much disclosure on historical organic growth, but we estimate that Saputo has incurred negative underlying revenue performance over the past few quarters, a marked difference than the reported positive gains in four of the last five periods, due to this favourable foreign-exchange translation," she writes. Those favourable currency dynamics "are masking significant price pressures," she believes.

Ms. Lash said she thinks Saputo's high valuation implies 6.5-per-cent annual sales growth over the next 10 years, with an operating-profit-margin expansion to more than 12 per cent. (It was 10.2 per cent in the most recent quarter, an improvement of 1.9 percentage points.) She views this as "unlikely," saying "We haven't wavered from our stance that the market is neglecting the competitive headwinds, macroeconomic pressures and volatile input prices that we suspect will ultimately constrain Saputo in the longer term."

The danger, she argues, is that Saputo will feel pushed into overpaying for future acquisitions if its organic growth prospects are lacklustre. (The purchase of a controlling interest in Australian dairy Warrnambool in 2014 was completed at an enterprise value/EBITDA ratio of 11 to 13 times, "a rather rich valuation," she says.)

Ms. Lash may be entirely too pessimistic, of course. But her views illustrate that Saputo's limited upside, and potential downside, may give investors more to cry about than just spilled milk.