When the company Pinnacle Foods (PF) gets mentioned, I would imagine most people would have no idea what the company's business model was, other than it probably had something to do with the food industry. In fact, if you were to open up your kitchen pantry or refrigerator door you probably have one of its many brand name foods sitting right there. The brand names Duncan Hines, Birds Eye Foods, Vlasic, Hungry-Man and Mrs. Butterworth's, only to name a few, are found in 85% of the American households.
I would argue this is one of the most important ingredients in a company that a person would like to invest in for very long period of time without worrying whether the competition is taking large bites out of its business. If you think about it, if you are anything like me when it comes to grocery shopping, you generally are pretty repetitive in buying the same brand of food if it tastes great and is reasonably priced. Once I find a particular brand of food that I like, whether it be pickles, syrup, frozen vegetables or brownie mix, I will continue to purchase that brand unless something out of the ordinary tempts me to try another brand. Pinnacle Foods, which had its IPO in March, has an arsenal of well recognized, popular household brands of food that are found in every grocery store. Holding the No. 1 or No. 2 market position in 10 out of the 12 major categories in which it competes is an incredibly powerful statement about its branding power.
Another critical piece of the puzzle I require a company to have is a credible management group that has a great track record in its field. Leading this company is CEO Robert Gamfort, who served as the North American President of Mars, another well established company that sold over 8 billion dollars worth of food products in North America alone. Gamfort is no stranger to the consumer food product industry and has a great track record of leading a consistently profitable company.
The financial stability and consistent sales revenue from a product that will be needed through flourishing times and in recessions is another comforting aspect of this company. As of May 15, when it reported its first-quarter results, it is anticipating forward earnings per share to be $1.49 to $1.55 for 2013. This would put a forward P/E multiple of 16.61 at the current price of $25.24 after rising 5% in just one day after reporting a better-than-expected quarter and giving positive forward guidance. This is lower than the industry average of over 20, Kraft Foods (KRFT) at 17.47 and Campbell Soup (CPB) at 17.76. It will also be paying out $0.18 per share this quarter, giving the stock a 3% yield and planning to continue raising the payout as well.
I plan to hold this stock for the very long term but I will point out a short-term catalyst that should move the stock higher in the next three-six months. As with any IPO that just debuted in the market, analysts will start their coverage of the stock and I anticipate quite a few "buys" initiated given the company's better-than-expected first reported quarter. Another positive the company has going for it is that everyone is searching for stable companies that are in a plain vanilla market that have predictable sales and a decent dividend yield to replace the almost non existent yield of a U.S. Treasury Bond. That being said, I am actually rooting for the analysts to put a hold rating or even be negative on the stock so I can pick up more shares on the cheap, but I'm sure that is wishful thinking.
I think this company is still somewhat flying under the radar from most investors as well as still in the "prove itself stage" for at least the next few quarters. Sometimes being in a slow boring field of business such as selling food products does not put you in the exciting spotlight but at the end of the day slow and steady usually wins the race. This stock could be purchased and still let a person sleep well at night knowing everyone will still need to eat breakfast when they wake up and will most likely be putting Log Cabin or Mrs. Butterworth's syrup on their pancakes.