Imperial Sugar: Catalysts Poised to Push Company Higher

Includes: ADM, INGR, IPSU
by: Mark Krieger

The sweet spot for Imperial Sugar (NASDAQ:IPSU) has arrived. It is time to back up the truck and harvest the abundance of low hanging fruit.

After a roller coaster year, it appears that that as far as IPSU is concerned, all the stars and planets seem to be lining up, ready to catapult the stock into orbit. Brad Safalow, whose $25 price target is the highest of all analysts covering it, reiterated that the production bugs at the company’s new Port Wentworth refinery are close to being eliminated and that the spread between raw sugar and refined sugar has never been greater. In fact, IPSU was scheduled to have its damaged silos put back into production by the end of February. If Port Wentworth finally gets its act together, it will be a very happy day for investors and a possible catalyst to fulfill Safalow’s bullish expectations.

Annual Shareholder’s Meeting Highlights:
(1) IPSU’s 50% ownership of Wholesome Sweeteners has been nothing less than spectacular, as its growth in Agave helped spearhead a 43% sales increase. IPSU’s option to purchase the remaining 50% of Wholesome expires on May 31, 2011, and it is likely the company will indeed enter into a transaction at a cost of about $40 million to do so. Management has been working on establishing a new credit facility to provide the financing and the acquisition would certainly be earnings accretive.
(2) As of 12/31/10, IPSU’s Gramercy plant has been turned over to a new joint venture owned by Cargill, Louisiana Sugar Producers and Imperial. IPSU contributed a seven acre parcel for its 33% share. A new $150 million state of the art plant will be completed by mid summer and will increase capacity by over 50%. IPSU will still retain its ownership in its small bag packaging facility.
(3) The company’s Natural Sweet Venture’s partnership with Pure Circle LTD has been in operation for about a year now and management has made it crystal clear that so far expectations concerning the development and marketing of steviacane have already been eclipsed. IPSU has already been test marketing the product in a Texas and plans to start marketing it to food and beverage producers by the end of the year.
(4) IPSU’s 50% ownership in its Mexican CSI operations experienced 30% sales growth, while the addition of a new bulk bag transfer station in the second quarter should add momentum (Mexico now supplies 10% of the U.S. sugar market).
Second quarter results: IPSU is expected to lose 22 cents on revenues of $143 million when it reports second quarter results the first week of May. IPSU’s track record of missing expectations has been like clockwork the last two years, so a surprise to the upside is way past due. And If it occurs, the stock’s very low float could propel the shares 20% higher in a single trading session prompted by a massive short squeeze.
Also, is a takeover attempt brewing? IPSU’s very low market cap makes it susceptible as a takeover candidate especially when you consider the shares are trading at less than book value per share of $18. The most likely suitors would be Cargill, Corn Products International (CPO), Archer Daniel Midland (NYSE:ADM) or some kind of private equity deal.
Bottom line: I realize I have recommended this stock over and over again, and it has done nothing less than continue to thoroughly disappoint. My stubbornness to maintain its promotion hinges on the old adage that "every dog has his day." Besides it would be a nightmare to finally throw in the towel, only to see the shares skyrocket the moment you do so.
Disclosure: I am long IPSU.