Ruddick Corp (RDK)

Jakila sold me with that comprehensive pitch. Going to check this one out for the Momentum MF Portfolio.

Following JakilaTheHun with this one.
See his excellent pitch.

Coattails on Jakila

A boring business in a boring industry -- perfect for the foul weather of this economy. Even though profit margins are razor-thin (as is the case for most grocers), I like their numbers overall; all positive with the exception of YoY quarterly earnings growth. I also like the aspect that they're slightly diversified into textiles and aren't wholly reliant on the aforementioned margins of food marketing & delivery. It's going to be a rough ride for everyone over the next year, but I think/hope these guys do well. A marginal thumbs up.

Ruddick Corp operates two divisions. One operate grocery stores in Southeastern states and and the other division manufactures and distribures thread and technical textiles. Jakila the Hun's recent pitch says it all.

So let me see if I've got this straight --- we have a well-run, growing corporation that operates one of the best managed grocery chains in the nation that has seen its earnings move steadily upwards over the past four years and yet, the stock price seems to have an inverse relationship to the performance? Hmmm ... something doesn't seem right.

I don't jump into grocers that often because I like to chase stocks with higher reward potential, but for a more "conservative" stock, this looks like a pretty damn good bet. Net tangible assets (NTA) alone for Ruddick are equal to $17 per share. Even if I take a few more discounts (like say $140 million worth) to be on the safe side, I come up with a $14.25 adjusted NTA per share figure. Not bad, eh?

But that's only the tip of the iceburg. Earnings have steadily grown over the years. In FY '06 Diluted Earnings Per Share (DEPS) were $1.52 per share. By FY '08, DEPS had grown to $2.00 per share. While RDK's FY '09 earnings have fallen a little bit, they still look to be in good shape. For the first three quarters of FY '09, they've earned $1.29 per share compared to $1.49 per share in the same period for FY '08.

Ok, so the most recent quarter was the roughest as they earned 34 cents (per diluted share) vs. 51 cents the prior year, but take a look a closer look at their income statement and you see that all of that drop can be attributed to a non-cash impairment charge. In actuality, they are earning almost exactly the same as they were last year. Once you take out the one-time charges, Earnings Before Taxes only fell from about 83 cents to 78 cents per share; after taxes, that translates to about a 3 cents per share difference.

Operating Cash Flows have been spectacular, as well. They have been free cash flow neutral, as they have been expanding rapidly and opening up new Harris Teeter stores. But that should also suggest that Ruddick may have a lot of growth in it still.

Another thing to consider; the biggest concentration of Harris Teeter stores are in North Carolina and they are headquartered in Charlotte. Charlotte right now has one of the worst unemployment rates in the nation, so it has suffered much more than the rest of the nation. For a grocer with a heavy NC concentration to perform as well as it has over the past year is pretty impressive.

As for valuations, if I go with a more conservative $14.25 NTA figure, a 9.5% cost of capital, and assume steady state earnings of $1.75 per share with 3% growth, I come up with a valuation of $40.50. And that may be somewhat conservative since I might be (a) over discounting their asset values, (b) understating their earnings, and (c) making too weak assumptions on growth. And yet, I still come up with a price about 67% higher than the current stock price.

In my more custom valuation, I came up with a value of $45. I think that's probably about right. Downside probable is $36. Upside probable is $50. But there is definitely some growth potential here, as well.

Personally, I love Harris Teeter. I shop there all the time. The prices are reasonable, the produce is fresh, they have spectacular bread, stores are always clean, and most of them are open 24 hours a day. This seems like a very good outperform pick under $25 to me. I'm not sure why the market is so down on it.

RDK is underpriced because they are a bit on the boring side. Growth and margins are slightly above average for grocers and the valuation is cheaper than the overall market.

RDK is engaged in both Harris Teeter and A&E clothing. Harris Teeter has by far the best customer service of any grocery store I've been in (this includes multiple states). Their food selection is phenomenal - well above that of Food Lion or Kroger.

having a several harris teeter stores for the past 9 years and seeing how the company operates on the round level, i really feel that it is a winner.

Great company with superior product in comparison with industry leaders. Excellent management is revealed through their superior customer service. Financial statements suggest to me, slow, but steady growth. Above average P/E suggests, you get what you pay for...

I think IrishBlueTwo said it best: "Company has found its niche and target customers and market areas where it preforms well."

Great alternative to whole foods, seems to be picking up some attention in the grocery section

Harris Teeter is like Whole Foods for the masses. They are more accessible and cheaper, and they carry all the brands most average people want. The company has other businesses to keep it diversified, and it pays a dividend.

I bought this stock because I buy into this company. Far and away the best customer service at any grocery store I've ever shopped--consistently good customer service from one store to the next. On top of that, the stores are ONLY in perfect locations. Always a pleasure to shop there, and meanwhile their main competitor (where I am living in Charlotte, NC) is Food Lion...which is not a competitor as it's nickname around here is Food Beast because of how nasty the stores are. There may be high competition in other parts of the country, but in Charlotte, NC Harris Teeter is dominating. Am I worried about Whole Foods and Trader Joe's down the road? Yes, but in the end I think the management, customer service, food selection, and ability to pick premier locations will continue to drive this company to greater success. Admittedly, I know very little about their textile business, which is about 20% of their total. Growing dividend and earnings momentum doesn't hurt either.

Man, a sale at Harris Teeter is like $3 for a 2-liter of generic soda. I got a VIC card, but what's the point? What's the deal with those grocery cards anyways? Why not just give me a sale without needing to remember the stupid little card. If I put all those little things on my keychain, I'd never get it into my pocket. They do have decent florist sections.

I originally looked at this stock because of all of the Harris Teeter stores that are popping up in my area (Northern VA). I don't like the company's financial position, however, and the grocery store business does not have a very good margin because it is so competitive.

supermarkets and textiles? - approaching full value at $36; technically overextended - look for 3 pt.drop within 90 days.

Great company, not afraid to close stores not doing well. Why still in textile business?

Company has found its niche and target customers and market areas where it preforms well.

Another case of buying the companies I shop with. Ruddick's Harris-Teeter arm is an upscale supermarket that's absolutely booming in the Southeast. Clean, attractive, well-lit stores that are a genuine pleasure to shop in, products that run the gamut from house-brand cans to super-premium meats and cheeses, and prices that keep them competitive. Room to grow here, and the smarts to pull it off.