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Oil-Dri Corporation of America (NYSE:ODC) Dec. 8, 2009 $15.39

Dividend = $0.15 quarterly = 3.9% current yield

Oil-Dri Corporation of America develops, manufactures and markets sorbent products, principally produced from clay. Oil-Dri’s sorbent technologies include absorbent and adsorbent products. The Company’s absorbent clay products include Cat’s Pride and Jonny Cat kitty litters. ODC also produces Oil-Dri branded floor absorbents, Agsorb granular agricultural chemical carriers and ConditionAde animal feed binders. Oil-Dri’s adsorbent products are used for industrial cleanup, and its bleaching clay products act as a filtration media for edible oils, fats and tallows. ODC sells pet products through groceries, wholesale clubs, drugstores and other mass merchants while their industrial products are generally marketed through distributors.

Oil-Dri has managed to increase EPS in each of the past three fiscal years despite the poor economic conditions. The FY ended July 31st saw all-time highs in sales, cash flow, EPS, and book value. Dividends have been paid each year since 1974 and they’ve been increased in each of the past six years. At the present rate of $0.15/ quarterly, the current yield is a generous and well-covered 3.9%.

Here are ODC’s per share numbers as reported by Value Line:

FY *

Sales

C/F

EPS

Div.

B/V

Avg. P/E

52-Week Range

2003

25.28

1.62

0.36

0.29

10.08

21.0x

5.98 – 13.40

2004

27.00

2.07

0.82

0.32

10.52

14.8x

10.09 – 14.84

2005

27.48

2.04

0.88

0.34

10.80

15.5x

12.36 – 15.80

2006

30.34

1.84

0.73

0.41

10.83

20.4x

12.83 – 18.25

2007

30.77

2.20

1.09

0.49

11.64

15.2x

15.00 – 23.60

2008

32.98

2.34

1.25

0.53

12.44

14.9x

10.19 – 21.94

2009

33.24

2.39

1.32

0.57

12.60

12.2x

12.85 – 19.20

* FYs end July 31st

Consensus views for FY 2010 and 2011 are now running $1.38 and $1.43 respectively making the multiple < 11.2x this year’s and about 10.8x next FY’s expectations. Those are very low P/Es based on ODC’s prior trading history. Indeed, the average multiple from the previous seven years has been 16.3x.

Oil-Dri’s balance sheet is solid. As of Oct. 31st they held cash and short –term securities of > $25 million. That figure exceeds total corporate debt. ODC has a 0.5 Beta and Value Line rates them as 75th percentile in ‘stock price stability’ and 90th percentile in ‘price growth persistence’ [with 100th being best].

Low ticket (and non-discretionary) items like kitty litter and industrial sorbents are unlikely to suffer much due to the general economic malaise.

A rebound to even 14.8x this FY’s estimate would bring the share price back to $20.42 or about 32% above today’s close. Add in the 3.9% dividend and you’d see about 36% in total return if this plays out as expected over the next 12 months.

Is that target price realistic? I think so. ODC shares hit a 2009 peak of $19.20 and touched $23.60 and $21.94 during 2007 and 2008 when sales and earnings were well below today’s levels.

I see Oil-Dri as a conservative, good-yielding stock with limited risk and decent upside. No kitten.

Disclosure: Author is long ODC shares.

Source: Oil-Dri Corporation: Rewarding Littering