Sara Lee: Management Succumbs to Analyst Criticism

It just took one day before Sara Lee (SLE) management made an “about face” on its decision to halt its stock buyback program. SLE issued the following statement,

As the result of the lower share price, the company has determined it will re-enter the market to buy back its shares on an opportunistic basis.

Analysts had been highly critical of SLE’s decision to suspend purchases, especially with the shares trading at multi year lows. It sounds like SLE management came to their senses after a brief moment of insanity and did the right thing.

Share loss substantial: Although the overall market sank about 10% during the previous two sessions, SLE shares got pummeled at about twice that rate, dropping almost 20% from Tuesday’s close of $11.86 to Thursday’s final trade of $9.52. The shares are extremely oversold, dropping too much in too short of a time frame. The resumption of the stock buyback program should ignite a nice rally. It is a definite confidence builder and most likely will persuade those holding short positions, to contemplate covering. There should also be a slew of bargain hunters emerging, as the collapsed share price becomes just too tempting for them to pass up. The shares now sell at a "bargain", 8 times fiscal 2009 earnings estimates. The deterioration of the stock price has elevated the current dividend yield almost 100 basis points in the last two sessions, to a generous 4.6%

Bottom line: It would be prudent to open a long position, especially to “piggyback” the positive buy back news. The shares could likely rally 20% by year’s end, providing a handsome return for contrarian investors looking for an opportunity to strike gold with minimal risk.

Disclosure: Long

Comments

[JLH:]

Still short - Didn't like Barnes at Pepsi, don't like her at Sara Lee.

2008 Nov 07 08:31 AM

[Arbitrage C...:]

I think Sara Lee over pays their Drivers. Do you know how much Sara Lee pays their drivers in wages and the legacy cost to the teamsters? On the Central California coast some of them make $85k per year. That is not counting the add in's for their pension of $5k per month and medical they will receive during retirement. That is crazy when most are using a 401k plan to have to pay this money and the actuarial assumptions and models are now blown with Treasuries now yielding zero for the 4wk and negative in frenzied trading. This means that Sara Lee will have to pay up to fund the pensions that were assumed that bonds and stocks would yield 7-8 per annum. I really am disgusted at the wages this jokers make. Unless Sara Lee gets their cost under control they will end up like International Bakeries that had to go on the pink sheets and had problems and sold off many of their key labels. Sara Lee needs to outsource the bread drivers or cut their wages in half. A long haul trucker makes half the wages of the loafers! Sara Lee wake up and smell your coffee management and understand more cuts are needed. The pension and defined benifit plan you pay is going to cost you are fortune. Learn from GM's mishaps and mistakes. I hope the best for Sara Lee but until I see meaningful cost cutting and a new pay scale for even the current drivers I see us going down to $5 a share. The dividend will end up being reduced to pay the wages.


Just My Humble Opinion

2008 Dec 11 12:06 PM