John B. Sanfilippo & Son, Inc. (NASDAQ:JBSS)

CAPS Rating: 4 out of 5

The Company is a processor and marketer of tree nuts and peanuts in the United States.


Player Avatar colmust2 (76.18) Submitted: 9/13/2006 2:04:26 PM : Outperform Start Price: $8.60 JBSS Score: +376.61

JBSS is trading at 0.6x tangible book value and 0.2x sales. Their recent fiscal year has been horrendous, due to nut costs that have been high but are now coming down. Unfortunately, the company only buys nuts once per year, so they are still working off their high cost inventory, particularly in almonds, which don't run out until the end of October 2006. Going forward from here we will see steady increases in earnings.

JBSS is a cyclical company, but not cyclical with the economy. The company's cycle is based on commodity prices for nuts. And right now the company is emerging from a cyclical trough, and at the same time the company's valuation is at a trough (I believe the company is trading at less than 5x normalized earnings).

If the company can get back to their historical average gross margin of 17%, they should be able to earn $2+ per share, which I expect to happen by FY 08 (year ending in June). By FY 09, due to cost savings from the plant rationalization project, $2.50 per share should be possible.

Slap a 10x forward multiple on those earnings and you are looking at more than a double from current prices.

Risk reward is very favorable - on the downside you are trading already at a discount to tangible book value, so it's hard to see the stock go down much further from here.

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