Seeking Alpha
Dividend investing, dividend growth investing, long only, long-term horizon
Profile| Send Message|
( followers)  

Summary

  • Pinnacle Foods' 2.92% dividend yield and high expected EPS growth make it very attractive for dividend growth investors.
  • Its short-term balance sheet health is excellent, with a current ratio of 2.49.
  • The stock is up 17+% YTD. I'll wait for a pullback before getting in.
  • PF is trading at lower p/e and p/s ratios than its competitors.

Pinnacle Foods (NYSE:PF) produces, markets and distributes branded food products. The company recently increased its quarterly dividend to $0.235 per share, which at the current price of $32.23 provides investors with a dividend yield of 2.92%. Shares in the company are up 17.4% year to date. At these prices, is there still value to be found in PF?

PF Revenue (TTM) data by YCharts

Revenue for Pinnacle Foods totaled $2.54 billion in the most recent 12 months. For the current fiscal year, which ends in December, analysts expect the company's revenue to reach $2.60 billion, an increase of 5.5% to last year's $2.46 billion. Pinnacle Foods has a trailing price to sales ratio of 1.48 and a forward p/s ratio of 1.46, which is a lot lower than its competitors Mondelez (NASDAQ:MDLZ) and General Mills (NYSE:GIS), as can be seen in the next graph.

PF PS Ratio (TTM) data by YCharts

PF Payout Ratio (TTM) data by YCharts

PF has paid out 52.3% of its earnings in the form of dividends over the past 12 months, which is close to GIS' payout ratio of 58.1% but well above Mondelez's 27.2%. Analysts expect the company to increase EPS by 10.8% in the current fiscal year, to $1.74. This is on the high end of the company's guidance of $1.70-$1.75. For next year, average estimates stand at $1.92, which means the company is now trading at 16.8 times next year's expected earnings. General Mills is trading at 16.4 times next year's expected earnings, while Mondelez's forward p/e stands at 18.7.

PF Current Ratio (Quarterly) data by YCharts

Pinnacle's balance sheet looks very good, with a current ratio of 2.49 and a quick ratio of 1.01, which is far better than its competitors. A current ratio of more than 1.0 indicates good short-term financial health, as current assets are larger than current liabilities. Over the past 12 months, PF paid $91.8 million in interest for its debt, which is a lot less than its competitors. However, PF is much smaller in terms of revenue and market cap. $91.8 million is 3.7% of PF's revenue over the past 12 months. For comparison, GIS' interest costs were 1.7% of revenues, while MLDZ's $1.45 billion in interest expenses is equal to 4.1% of trailing twelve month revenues.

PF Net Interest Income (TTM) data by YCharts

Conclusion:

Looking at the price to sales ratio, Pinnacle Foods appears to be slightly cheaper than its much larger competitors. The company has a p/e ratio that's very close to General Mills'. Mondelez is quite a bit more expensive, trading at 18.7 times expected earnings. Looking at the price to sales ratio, we can see Pinnacle Foods is a lot cheaper than its competitors, with a trailing price to sales ratio of 1.48, compared to Mondelez's 1.84 and General Mills' 1.92. The short-term balance sheet health is excellent, with a current ratio of 2.49, but the interest costs for the long-term debt are quite high, at 3.7% of trailing twelve-month revenues. The company's high dividend yield and high expected earnings growth make it a great addition to a diversified portfolio of stocks. PF isn't very expensive at the moment, despite the 17+% increase YTD, but I'll wait for a pullback to the $25-$30 range before getting in, as I like to have a margin of safety.

Source: Consider Pinnacle Foods For Its 2.92% Yield