Bank of America Believes that Domino's New Menu Option will Boost Potato Producer Shares

Per the Bank of America, a new item on the Domino's Pizza menu could result in significant gains for the stock of the potato producer Lamb Weston.

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The Lamb Weston stock received a buy rating from Bank of America analysts again one day after Domino's made the announcement of the national rollout of "Loaded Tots." the analysts also reiterated a 12-month price target of $115 for the stock of the Idaho-based company, which would represent a 16% increase from Tuesday's closing price.

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According to Bank of America, Lamb Weston, whose shares have already increased by nearly 11% in 2023, would profit from Domino's decision. With a 43% market share, it dominates the frozen potato product industry in North America.

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The report wrote that the potato processor finally added 50 million pounds to its volume for chopped and formed potato goods, such as hash browns and tater tots, in a bid to meet growing demands. However, the bank doesn't really see the tater tots as iterative to Lamb Weston's financial outlook for the current fiscal year.

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According to Trade Algo research, 83% of fast-casual restaurant menus nationwide include potatoes. With the introduction of Domino's tater tots, Bank of America anticipates an increase in that. They also note that constrained capacity expansion and a shortage of potatoes support a "longer-term bull case" for Lamb Weston earnings.

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As shoppers hunt for sharing items they can add to their current orders, "we foresee significant demand for Loaded Tots," analysts noted in a research study on Tuesday. "We view the Tots launch as the beginning of a revitalized cycle of product innovation that will generate greater ticket, customer trial, and frequency," the company says.

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Several customers will be able to purchase the tater tots in time for the Super Bowl on Sunday because they are already on sale in some stores and will be made available nationwide later this month.

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In order to avoid frying, the tots will be delivered frozen and baked in the oven before being topped. Three flavors of the tots are available from Domino's: Philly Cheese Steak, Cheddar Bacon, and Melty 3-Cheese.

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The report predicts that within their first year, the tater tots will increase Domino's retail sales by around 2%. Domino's was once again reiterated by Bank of America as a buy, with a $448 price objective indicating a 25% increase from Tuesday's closing price. The company's stock has increased by around 2% this year.