The consumer good sector, when compared to more attractive regions such as technology or healthcare, has not received too much attention in the news as of late. However, the lack of consideration by the major news outlets does not necessarily mean that this sector, and more specifically, the farm product industry of this sector, is not an attractive buy. With market cap leaders such as Bunge (BG), Delta and Pine Land (DLP), and Fresh Del Monte Produce (FDP) performing fairly well over the past year, there may be some further optimism for this industry. One company in particular, Andersons Inc. (ANDE), I feel will continue to do extraordinary well over this next year.
Looking more specifically on what Andersons actually does, according to the profile set up on Reuters, Andersons, “has diversified interests in the agriculture and transportation markets.” With a semi-conglomerate at hand for this company, while there will be some difficulty finding alpha beating growth results, there will also be strong difficulty in losing quite a bit of money. Referring back to the specific areas Andersons is involved with, Reuters mentions that this company, “operates in five segments: the Grain & Ethanol Group, the Rail Group, the Plant Nutrient Group, the Turf & Specialty Group and the Retail Group.” With such a diversified enterprise, Andersons is really hedging their bets against any slowdown to either transportation or agriculture. The one area which really stands out, the Grain & Ethanol Group shows that while Andersons still operates possibly “old” industries relative to its Rail Group, thinking of the future in terms of ethanol, is still a strong attribute for this company to have.
This support is really evident over the past two years, after the share price of Andersons rose close to 400% because of the spike in crude oil prices. Inevitably, as oil will continue to rise in the future years, and ethanol continues to be the main substitute to use for replacement, there is incredible potential for this company, its earnings, and, subsequently, its share price. Furthermore, theoretically, Andersons hedges itself in a way as well. As oil and other related commodity prices rise, its Rail Group may not produce that strongly, but the higher commodity prices also increase demand for its ethanol services. The added bonus of having this company in your portfolio can be attributed to not only this self-hedging strategy, but to the fact that this company produces inelastic goods which do not tend to be harmed too much during times of economic slowdown–a very plausible situation for the United States in the next year or so.
While the company has a solid business plan, without a strong fundamental base, this plan will be truly hard to execute. However, looking over the figures Andersons has produced over the past few years, there are no real blemishes I can find to stop investors from purchasing shares of this company. Examining the top line, according to Capital IQ, over the past year Andersons has produced in terms of sales very nicely with over 1.5 billion dollars–spread out to a revenue per share of more than 91. Its quarterly growth rate over the past of near 21% is also quite solid, as competitors such as Bunge and Fresh Del Monte Produce have only brought in respective quarterly numbers of 14% and negative 3%. Looking at the very important P/E ratio, Andersons’ forward of a bit more than 12 handily beats out the multiple of the industry at 17, and it also beats out the forward ratios for competitors Bunge (14.91), Fresh Del Monte (15.21), and Delta and Pine Land (24.64). In addition to being undervalued in this regard, looking at some more detailed multiples relative to price to sales, enterprise value to revenue and enterprise value to cash flow, Andersons’ respective numbers of 0.51, 0.65, and 11.56 are all favorably low compared to the industry and rivals. For example, Delta and Pine Land’s respective numbers of 3.52, 3.37, and 18.18, albeit with a lower enterprise value, still illustrate how this company is overbought after this recent year when it rose close to 50% on a small 0.71 beta. On the other hand, while Andersons grew in terms of share price at a similar rate, with a beta of close to 2.25, there is more reason not to believe that Andersons is overbought. Furthermore, as growth is always a key component of gauging how a company is performing, looking at the PEG ratio for Andersons, analysts, over the next five years, are predicting a fairly high growth rate, leading to a low ratio of about 0.79. Comparing this number to Bunge’s 1.64 or Fresh Del Monte Produce’s 2.51, there should be optimism surrounding this company because of not only its sturdy foundation, but because of its strong future.
While the numbers for this company do look good at first glance, without a strong management team, these figures may just have been considered useless. However, CEO Michael J. Anderson and his 1280 employees seem to be acting quite nicely, if some of these statistics are any indication. For example, Andersons’ ROE of 16.94% is above the industry’s average, and is also above the ROE of competitors Bunge (10%), Fresh Del Monte Produce (-13%), and Delta and Pine Land (13%), not to mention the industry’s 11.30% average. In addition, Andersons’ Return on assets and return on investments over the last year, respectively, of five and nine percent are also good indication of the success of this management team. Looking towards the balance sheet, while the book value is a bit low compared to some of the other companies in this industry, the company still is fairly solvent with a current ratio over 1.4, and a long term debt to equity ratio just over 0.5. Therefore, as long as this company can continue its strong fundamental support, there should be no immediate disinterest in committing some capital into Andersons.
Looking over the charts, it is true that Andersons is currently trading above its 200 and 50 day SMA. However, over the past two years, there have been amazing share price growth because of the crude oil scare. With oil prices continuing to slowly rebound from its lows hit more than one month ago, there is some strong potential for this company to rebound and reach its 52 week high hit last summer. In addition, with an EBITDA of more than 81 million dollars, further research will go into capital expenditures for this company, and continued new innovations will only be a beneficiary to this company. Thus, with the strong background, both in terms of financials and management, coupled with a strong future potential related to its production, there should be some sincere interest in committing some of your capital into this stock.
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