Sanderson Farms, Inc. (NASDAQ:SAFM)

CAPS Rating: 5 out of 5

A fully-integrated poultry processing company engaged in the production, processing, marketing and distribution of fresh and frozen chicken products.

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Member Avatar racoveanul (83.65) Submitted: 4/12/2014 3:16:56 PM : Outperform Start Price: $77.43 SAFM Score: +3.84

SAFM has an A for financial health and a PEG less than 1 on Morningstar, so it's one of my long picks.

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Member Avatar chris293 (87.15) Submitted: 2/18/2014 1:12:30 PM : Outperform Start Price: $73.94 SAFM Score: +9.64

A well know company.

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Member Avatar OklaBoston (68.16) Submitted: 1/13/2014 7:35:26 AM : Outperform Start Price: $72.03 SAFM Score: +7.12

Overdue for a split, IMO.

Round lots should never be beyond the means of the inexperienced or non-wealthy. Splits when BV goes above, say, $15 could prevent that.

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Member Avatar stuerenburg (59.81) Submitted: 1/11/2014 3:36:25 AM : Outperform Start Price: $73.84 SAFM Score: +9.42

value

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Member Avatar PlayDumb (93.58) Submitted: 10/4/2010 4:09:56 PM : Outperform Start Price: $40.64 SAFM Score: +39.09

market is negative about short term prospects, but longer term a safe bet

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Member Avatar thebamoor (39.12) Submitted: 6/4/2010 3:53:00 PM : Outperform Start Price: $50.66 SAFM Score: -12.87

SuperSimple

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Member Avatar michaelbon (< 20) Submitted: 8/25/2009 11:04:50 AM : Outperform Start Price: $39.02 SAFM Score: +28.98

Improved market conditions for industry should continue into 2010. Very good 5 yr EPS Growth projection of 9%.
Current PE of 10.5 well below peer group average of 16.4

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Member Avatar oncqueen (73.70) Submitted: 8/28/2008 11:29:09 AM : Outperform Start Price: $32.08 SAFM Score: +106.74

Can't afford steak? " Let them eat chicken."

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Member Avatar davidova (< 20) Submitted: 5/23/2008 7:53:42 AM : Outperform Start Price: $44.25 SAFM Score: +45.93

s

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Member Avatar Windkissed (< 20) Submitted: 4/24/2008 10:30:13 PM : Outperform Start Price: $38.66 SAFM Score: +73.14

Will outperform during the summer and into early fall

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Member Avatar tupperjack (50.06) Submitted: 3/31/2008 8:06:06 PM : Outperform Start Price: $35.65 SAFM Score: +85.03

with rising fuel pricess chicken will again become the meat of choice

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Member Avatar mhamp (48.52) Submitted: 3/26/2008 4:30:59 PM : Outperform Start Price: $36.17 SAFM Score: +82.32

FORGOTTEN COMMODITIES

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Member Avatar raghukatte (< 20) Submitted: 3/12/2008 11:41:18 AM : Underperform Start Price: $35.92 SAFM Score: -82.31

37.5

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Member Avatar jbs4radio (72.29) Submitted: 3/8/2008 2:46:26 PM : Outperform Start Price: $32.80 SAFM Score: +99.96

Fool = .026, .14 div, shows 1st Qtr profit

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Member Avatar freefall51 (47.25) Submitted: 2/26/2008 11:23:20 PM : Outperform Start Price: $33.83 SAFM Score: +100.79

I like Chicken

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Member Avatar Swardacyb (80.87) Submitted: 2/26/2008 9:52:41 AM : Outperform Start Price: $33.55 SAFM Score: +102.20

ASDF

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Member Avatar MJKscorecard (57.48) Submitted: 2/3/2008 4:41:37 PM : Outperform Start Price: $31.12 SAFM Score: +122.22

“EAT MORE CHIKIN,” my favorite cows from Chick-fil-a say and now I’m on that bandwagon too. This month I’m bringing you the sexiest poultry processor you’ve ever scene albeit that’s not saying much. Sanderson Farms has an experienced management team, an expanding business in a growing market, a profitable product mix, a rock solid balance sheet and an income statement minting cash.

Alright already, enough with the small talk, where is the catalyst for minting a lowly shareholder a few bucks?
- Average tenure of management is 20 years
- 14% average revenue growth since 2000
- $214 million in Capital improvement projects over the last 3 years
- A new poultry processing plant in Waco TX that will have another 1.25M (17% increase) chickens crossing the road each week.
- Out of favor company, combined with a general market down turn, is presenting us with a quality undervalued company at today’s prices
- Historically lower price to value ratios at today’s prices

So how much again?

Discounted Cash Flow:
Assumptions
- Free cash flow (using average free cash flow since 2002 and average maintenance expenditures since 2002 = 69.1M – 25M = 44.1M) I am using a longer running average given how cyclical the business can be. If I were to use 07 free cash flow minus maintenance expenditures of 74.1M, the margin of safety would be even better.
- 14% annual growth for 10 years (roughly a conservative average of the last 10 years)
- 3.5% terminal annual growth (who knows, maybe people stop eating chicken and the company breaks away from 60 years of growth)
- Current stock price (33.47)
- Shares outstanding (20.2M)
- Discount Rate 12% (What the stock market would return on average)

Given these assumptions, if I were to “guess” or work backwards to the share price I would want to pay no more than $57.12 and if I can buy at today’s price of $33.47, I am buying at a 40% discount.

And that means how much?

Owner Earnings, Hypothetical Growth Rate, and Implied Stock Prices:
Assumptions:
- Capital expenditures - I am figuring the maintenance portion of capital expenditures only when figuring owner earnings. The Company estimates 25 million a year.
- 07 Owner Earnings – I estimated 74 million per year (free cash flow minus maintenance capital expenditures 99M-25M)

I am estimating 07’ owner earnings of 74 million and assuming that the market will bare 9X owner earnings at the low side and 12X on the high side based on historical ratios.

...........................................Owner Earnings........Implied............Compound
Current........Hypothetical........in 5 years….........Stock Price........Annual Stock
Stock Price....Growth Rate....(in $ millions).........in 5 years..............Returns
……………………………………......……………….low/high…........low/high
============================================================
...$33.47............ 5.0%................$ 94.6...................$42/$56..............5%/11%
...$33.47............10.0%................$119.3..................$53/$71.............10%/16%
...$33.47............15.0%................$149.0..................$66/89...............15%/21%
...$ 33.47............20.0%...............$184.4..................$82/110.............20%/27%

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Member Avatar aaacs (94.61) Submitted: 1/26/2008 8:58:00 PM : Outperform Start Price: $29.29 SAFM Score: +133.74

I'm not chicken of this stock! Very good management team up and down over any short term period but DIV helps smooth that out!

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Member Avatar MJKpayday (99.79) Submitted: 1/20/2008 7:43:23 PM : Outperform Start Price: $27.04 SAFM Score: +150.02

Business - Sanderson Farms, Inc. (Sanderson Farms), incorporated 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 conducts its chicken operations through Sanderson Farms, Inc. (Production Division) and Sanderson Farms, Inc. (Processing Division), the wholly owned subsidiaries of Sanderson Farms, Inc. It conducts its processed and prepared foods business through its wholly owned subsidiary, Sanderson Farms, Inc. (Foods Division). Sanderson Farms sells ice pack, chill pack and frozen chicken, in whole, cut-up and boneless form under the Sanderson Farms brand name to retailers, distributors, and casual dining operators in the southeastern, southwestern and western United States. The segments of the Company include big bird deboning, chill pack and small birds. (Reuters)

Ownership – Sanderson Farms was founded by D.R. Sanderson, better known as Mr. Bob, and his sons Dewey and Joe Frank. The company has been tilled from its roots as a grocer, vegetable business, and hatchery to a premier national poultry producer and with its family values, strong work ethic, honesty, integrity, and protestant heritage instilled from the top - its built to last. The company remains in the hands of family, Joe F. Sanderson is the Chairman and CEO and owns roughly 5% of the company or nearly 30M worth. The remaining 5% of insider holdings is held mainly by other Sanderson family members and corporate executives.

Valuation
My two favorite metrics are tangible price to book and trailing price to earnings, basically what you get and what you got last year. I know it’s not perfect and there’s more to valuation, but it’s a good start and by most measures the 1.5 price to book and a 7.7 trailing PE value is worth further investigation

Opportunities
Although feed prices are expected to rise considerably into 08’ and beyond there are other market forces and opportunities I would expect to more than offset the additional costs. Developing countries abound are demanding more protein in the form of meats with chicken being the first choice because of its costs, lean cuts, and availability. On the opportunity side I am most excited about the 300M+ in capital expenditures over the last 3 years, in particular its plans for a new poultry processing plant in Waco, TX, which is capable of processing 1,250,000 chickens a week. That would be 2,500,000 wings.

Bottom line: “Eat More Chikin,” Chik-fil-a

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Member Avatar FundamentalGamma (54.32) Submitted: 12/6/2007 11:12:08 AM : Outperform Start Price: $30.68 SAFM Score: +135.96

FS = 82
Gamma = 2

Fundamentals good, price substantially undervalued.

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