Sanderson Farms, Inc. (Nasdaq: SAFM), incorporated in Mississippi in 1955, is a fully-integrated poultry processing company engaged in the production, processing, marketing and distribution of fresh and frozen chicken products.
The company sells ice pack, chill pack, bulk pack and frozen chicken, in whole, cut-up and boneless form, primarily under the Sanderson Farms® brand name to retailers, distributors, and casual dining operators principally in the southeastern, southwestern, northeastern and western United States, and to United States based customers who resell frozen chicken into export markets.
During its fiscal year ended October 31, 2010 the company processed 405.0 million chickens, or approximately 2.57 billion dressed pounds.
Basis
Financial information presented herein, is based on the company's most recent SEC Form 10-K filing for year ending October 31, 2010, as filed with the Securities and Exchange Commission on December 14, 2010.
Short-Term Investment Valuation
The stock closed recently at $40.34, with First Resistance at $44.50, a 10% increase from the recent close, and Second Resistance at $44.86, an 11% increase from the recent close. Should the stock price breakout above second resistance, the next resistance level is $49.47, a 23% increase from the recent close.
The stock should find Support at $38.177, a 5% decline from the recent close.
Earnings Growth Valuation
Earnings growth valuations are based on the spread between year over year earnings growth and the current PE.
In the case of Sanderson Farms, Inc., the company had a year over year earnings growth of 53%, ending FY10 with earnings of $8.45 per share.
With a trailing twelve month PE currently at 5, the spread between earnings growth and the PE is 11.4, meaning that for an investor focusing on earnings growth, the stock should be trading at $136.47, a $96.13 increase from a recent close.
Fundamental Investment Valuation
Liquidity: The company ended FY10 with a Current Ratio of 3.23, a Quick Ratio of 1.55, a Cash Ratio of 0.69, and a Cash Conversion Cycle of 42 days. In addition, with Goodwill and Intangibles comprising 0.0% of Total Assets, and the company ended the year with a Book Value of $29.22 and a Tangible Book Value of $29.22.
Profitability: FY10 found the company with a Gross Margin of 18%, an Operating Margin of 13.5%, a Net Operation Margin After Taxes (NOPAT) of 9.7%, a Return On Invested Capital (ROIC) of 28%, and an Effective Tax rate of 35%.
Debt: The company ended FY10 with Total Debt of $65.2 million, a year over year decrease of 43%. Additionally, the company paid an average annual Interest Rate 4.14%, a year over year decrease of 4.3%, had a Debt to Cash Ratio of 0.89, and a Debt to Equity Ratio of 0.10.
Cash Flow: The company's FY10 Operating Cash Flow was $10.58 per share, a year over year increase of 19%. The company also ended FY10 with Free Cash Flow of $3.39 per share, a year over year decrease of 52%.
Dividends: During FY10 the company paid a $0.63 per share dividend, a 9% year over year decline.
Fundamental Valuation: Based on our review of the company's latest annual financial information we think a Reasonable Value Estimate for the company is in the $67-$72 range. To download a free copy of our Raw Value worksheet for this company, please click here.
Value Thoughts
Considering a Recent Close of $40.34, an estimated Merger and Acquisition payback of 3.5 years (assuming EBITDA remains the same), and year over year earnings growth of 53%, we think on a fundamental investment basis, the stock is currently UNDER PRICED, and a candidate for additional research for the Wax Ink Portfolio..
Wax
Disclaimer
We have no position in Sanderson Farms, Inc., and no plans to initiate a position in the next 5 business days. Additionally, we have received no compensation to write about a specific stock, sector, or theme.
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The Downgrading of Americans
Yesterday evening, the S&P credit rating service downgraded the debt of the United States from AAA to AA+.
The financial websites have gone ballastic, blaming the rating agency for playing politics. Many websites are reminding visitors that S&P missed the entire housing bubble, that there was a mistake in the company's rating data, and on and on.
The government's response has been accusatory. CNN and Fox News are attempting to find any evidence they can about who knew what when. Rupert Murdock is probably at this very moment hacked into Blackberry's across the country.
The Republicans are blaming the Democrats and the Democrats are blaming the Republicans. It is complete and utter stupidity!
The simple fact is that the credit rating of the United States was not downgraded yesterday, the American people were downgraded.
It is the American people that for decades have simply bent over, stuck their collective rear ends in the air, and ask the politicians for more.
We, ALL of the eligible voters in America, we, have allowed every bit of what is happening to happen.
We have allowed government to spend us into the poor house. We have allowed government to "borrow" all of the money from the Social Security Trust Fund. We have allowed governent, to do the things they have done, and we have gladly accepted it all.
Now that the demise of Uncle Sam has begun, the politicians are jumping up and down blaming one another, the cost of money will probably increase, any economic recovery will probably come to a halt, and the American voter will remain completely uninterested in the process.
Oh!, we American's will bitch, since Americans' view being able to bitch as a fundamental right. But that is all we will do, bitch, because we simply will not put for the effort to hold government accountable.
And so it will continue, until eventually...America is no more.
Wax
The financial websites have gone ballastic, blaming the rating agency for playing politics. Many websites are reminding visitors that S&P missed the entire housing bubble, that there was a mistake in the company's rating data, and on and on.
The government's response has been accusatory. CNN and Fox News are attempting to find any evidence they can about who knew what when. Rupert Murdock is probably at this very moment hacked into Blackberry's across the country.
The Republicans are blaming the Democrats and the Democrats are blaming the Republicans. It is complete and utter stupidity!
The simple fact is that the credit rating of the United States was not downgraded yesterday, the American people were downgraded.
It is the American people that for decades have simply bent over, stuck their collective rear ends in the air, and ask the politicians for more.
We, ALL of the eligible voters in America, we, have allowed every bit of what is happening to happen.
We have allowed government to spend us into the poor house. We have allowed government to "borrow" all of the money from the Social Security Trust Fund. We have allowed governent, to do the things they have done, and we have gladly accepted it all.
Now that the demise of Uncle Sam has begun, the politicians are jumping up and down blaming one another, the cost of money will probably increase, any economic recovery will probably come to a halt, and the American voter will remain completely uninterested in the process.
Oh!, we American's will bitch, since Americans' view being able to bitch as a fundamental right. But that is all we will do, bitch, because we simply will not put for the effort to hold government accountable.
And so it will continue, until eventually...America is no more.
Wax
Value Thoughts - Lawson Products, Inc.
Lawson Products, Inc. (Nasdaq: LAWS), is a North American distributor of products and services to the industrial, commercial, institutional, and governmental maintenance, repair and operations marketplace.
The company also manufactures and distributes production and specialized component parts to the original equipment marketplace including the aerospace, off-road equipment, military, and oil and gas exploration industries.
During 2010, the company discontinued operations of two of its subsidiaries, Assembly Component Systems, Inc. (ACS) and Rutland Tool & Supply Company (Rutland).
The company was incorporated in Illinois in 1952, and re-incorporated in Delaware in 1982.
Basis
Financial information presented herein, is based on the company's most recent SEC Form 10-K filing for year ending December 31, 2010, as filed with the Securities and Exchange Commission on February 17, 2011.
Short-Term Investment Valuation
The stock closed recently at $18.67, with First Resistance at $19.51, a 4% increase from the recent close, and Second Resistance at $21.51, 15% increase from the recent close. Should the stock price push through Second Resistance, the next point of resistance is $27.21, a 46% increase from the recent close.
Negatively, First Support for the stock price is currently at $13.41, a 28% decline from the recent close.
The 13-week Relative Strength number is 20, with the stock price trending downward. However, the daily Relative Strength number is near 40 and seems to be indicating a slight upward bounce in the stock price. The upward shift could keep the stock price out of over sold territory for the immediate future.
Quarterly earnings, announced 07/28/2011, were $0.12 per share, an $0.08 decline from the same year over year period.
Earnings Growth Valuation
Earnings growth valuations are based on the spread between year over year earnings growth and the current PE.
In the case of Lawson Products, Inc., the company had year over year earnings growth of 150%, ending FY10 with earnings of $1.18 per share.
With a trailing twelve month PE currently at 16, the spread between earnings growth and the PE is 10, meaning that for an investor focusing strictly on earnings growth, the stock should be trading at $29.22, an $11.25 increase from the recent close.
Fundamental Investment Valuation
Liquidity: The company ended FY10 with a Current Ratio of 2.43, a Quick Ratio of 1.49, a Cash Ratio of 0.73, and a Cash Conversion Cycle of 140 days. In addition, Goodwill and Intangibles comprised slightly less than 12% of Total Assets. When adjusted to compensate for these items, the company's Book Value of $16.81, drops to $13.48.
Profitability: FY10 found the company with a Gross Margin of 63.5%, an Operating Margin of 5.4%, a Net Operation Margin After Taxes (NOPAT) of 3.16%, a Return On Invested Capital (ROIC) of 8.77%, and an Effective Tax rate of 42.5%.
Debt: The company ended FY10 with no Debt.
Cash Flow: The company's FY10 Operating Cash Flow was $1.96 per share, a year over year decrease of 16%. The company also ended FY10 with Free Cash Flow of $0.53 per share, a year over year decrease of 69%.
Dividends: The company paid dividends of $0.26 per share during FY10, a year over year decline of $0.06 per share.
Fundamental Valuation: Based on our review of the company's latest annual financial information we think a Reasonable Value Estimate for the company is in the $34-$40 range.
Our Thoughts
Needless to say, the company is not in one of the glamor industries, and while we agree that selling nuts and bolts may be a bit boring, we also recognize that without nuts and bolts, little, if anything, is going to be manufactured or assembled.
But selling nuts and bolts does have it's perils. In August 2008, the company entered into a Deferred Prosecution Agreement (DPA) with the U.S. Attorney’s Office in connection with representatives of the company improperly providing gifts or awards to purchasing agents through the company’s customer loyalty programs.
Pursuant to the DPA, the company agreed to a $30.0 million penalty. The company paid $10.0 million in 2010, 2009, and 2008 in accordance with this agreement and continues to comply with the terms of the DPA which expires in August 2011.
In addition, during 2009, the company identified that it had shipped a limited number of products in violation of certain state environmental regulations and reported its findings to appropriate regulatory agencies. The company also recalled a limited number of products and is working with state regulators to take appropriate remedial actions to comply with these environmental regulations.
As of December 31, 2010, the company has accrued $0.2 million for penalties and expenses related to environmental matters and at this time, the company cannot determine if any further expenses may be incurred.
Portfolio Thoughts
Considering a Recent Close of $18.67, an estimated Merger and Acquisition payback of 6.7 years (assuming EBITDA remains the same), year over year earnings growth of 150%, year over year free cash flow growth of (69%), and our reasonable value estimate of $34-$40, we believe that on a fundamental investment basis the stock is currently UNDER PRICED, and a candidate for additional research for the Wax Ink Portfolio.
Wax
Disclaimer
We have no position in Lawson Products, Inc. and no plans to initiate a position in the next 5 business days. Additionally, we have received no compensation to write about a specific stock, sector, or theme.
The company also manufactures and distributes production and specialized component parts to the original equipment marketplace including the aerospace, off-road equipment, military, and oil and gas exploration industries.
During 2010, the company discontinued operations of two of its subsidiaries, Assembly Component Systems, Inc. (ACS) and Rutland Tool & Supply Company (Rutland).
The company was incorporated in Illinois in 1952, and re-incorporated in Delaware in 1982.
Basis
Financial information presented herein, is based on the company's most recent SEC Form 10-K filing for year ending December 31, 2010, as filed with the Securities and Exchange Commission on February 17, 2011.
Short-Term Investment Valuation
The stock closed recently at $18.67, with First Resistance at $19.51, a 4% increase from the recent close, and Second Resistance at $21.51, 15% increase from the recent close. Should the stock price push through Second Resistance, the next point of resistance is $27.21, a 46% increase from the recent close.
Negatively, First Support for the stock price is currently at $13.41, a 28% decline from the recent close.
The 13-week Relative Strength number is 20, with the stock price trending downward. However, the daily Relative Strength number is near 40 and seems to be indicating a slight upward bounce in the stock price. The upward shift could keep the stock price out of over sold territory for the immediate future.
Quarterly earnings, announced 07/28/2011, were $0.12 per share, an $0.08 decline from the same year over year period.
Earnings Growth Valuation
Earnings growth valuations are based on the spread between year over year earnings growth and the current PE.
In the case of Lawson Products, Inc., the company had year over year earnings growth of 150%, ending FY10 with earnings of $1.18 per share.
With a trailing twelve month PE currently at 16, the spread between earnings growth and the PE is 10, meaning that for an investor focusing strictly on earnings growth, the stock should be trading at $29.22, an $11.25 increase from the recent close.
Fundamental Investment Valuation
Liquidity: The company ended FY10 with a Current Ratio of 2.43, a Quick Ratio of 1.49, a Cash Ratio of 0.73, and a Cash Conversion Cycle of 140 days. In addition, Goodwill and Intangibles comprised slightly less than 12% of Total Assets. When adjusted to compensate for these items, the company's Book Value of $16.81, drops to $13.48.
Profitability: FY10 found the company with a Gross Margin of 63.5%, an Operating Margin of 5.4%, a Net Operation Margin After Taxes (NOPAT) of 3.16%, a Return On Invested Capital (ROIC) of 8.77%, and an Effective Tax rate of 42.5%.
Debt: The company ended FY10 with no Debt.
Cash Flow: The company's FY10 Operating Cash Flow was $1.96 per share, a year over year decrease of 16%. The company also ended FY10 with Free Cash Flow of $0.53 per share, a year over year decrease of 69%.
Dividends: The company paid dividends of $0.26 per share during FY10, a year over year decline of $0.06 per share.
Fundamental Valuation: Based on our review of the company's latest annual financial information we think a Reasonable Value Estimate for the company is in the $34-$40 range.
Our Thoughts
Needless to say, the company is not in one of the glamor industries, and while we agree that selling nuts and bolts may be a bit boring, we also recognize that without nuts and bolts, little, if anything, is going to be manufactured or assembled.
But selling nuts and bolts does have it's perils. In August 2008, the company entered into a Deferred Prosecution Agreement (DPA) with the U.S. Attorney’s Office in connection with representatives of the company improperly providing gifts or awards to purchasing agents through the company’s customer loyalty programs.
Pursuant to the DPA, the company agreed to a $30.0 million penalty. The company paid $10.0 million in 2010, 2009, and 2008 in accordance with this agreement and continues to comply with the terms of the DPA which expires in August 2011.
In addition, during 2009, the company identified that it had shipped a limited number of products in violation of certain state environmental regulations and reported its findings to appropriate regulatory agencies. The company also recalled a limited number of products and is working with state regulators to take appropriate remedial actions to comply with these environmental regulations.
As of December 31, 2010, the company has accrued $0.2 million for penalties and expenses related to environmental matters and at this time, the company cannot determine if any further expenses may be incurred.
Portfolio Thoughts
Considering a Recent Close of $18.67, an estimated Merger and Acquisition payback of 6.7 years (assuming EBITDA remains the same), year over year earnings growth of 150%, year over year free cash flow growth of (69%), and our reasonable value estimate of $34-$40, we believe that on a fundamental investment basis the stock is currently UNDER PRICED, and a candidate for additional research for the Wax Ink Portfolio.
Wax
Disclaimer
We have no position in Lawson Products, Inc. and no plans to initiate a position in the next 5 business days. Additionally, we have received no compensation to write about a specific stock, sector, or theme.
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