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Overhill Farms, Inc. (NYSEMKT:OFI) is a smartly-positioned California company that manufactures frozen foods and packaged frozen meals. Its products include frozen soups, sauces, and entrees for retail sale under the Chicago Brothers label. The company also provides private label and co-packing agreements with such retailers as Costco (NASDAQ:COST), Sam's Club, and Safeway (NYSE:SWY); as well as Jenny Craig, the weight loss company. Overhill Farms also serves several domestic airlines. The company has two manufacturing facilities in Vernon, California.

Overhill Farms reported record net income of $1.6 million for the first quarter ended December 31, 2006, on revenues for the quarter of $40.5 million. This is a 156% increase in net income from the $607,000 for the first quarter of last year, and a 2.4% increase in net revenues from the $39.6 million reported a year earlier. What I really like here is year-over-year quarterly earnings growth of 156%.

Also, Lehman Brothers is the biggest institutional shareholder, with Wellington a close second. Even CALPERS, California's huge state pension fund, has a piece. Why would they invest in such a small business?

The answer is easy and goes beyond being the supplier of meals for Jenny Craig. Overhill Farms has a broad array of clients and will be able to survive food and transportation inflationary pressures because of the high quality nature of its food and its varied customer base, which includes high-end supermarkets, the airlines, and the ever growing ranks of American dieters. Quality is the key here along with an image of organic-like quality and freshness in frozen food.

James Rudis, Chairman and CEO of Overhill Farms, believes the company will have a revenue run rate of $200 million by the third quarter of this year. Overhill Farms recently signed a three-year agreement to produce meals for a major national food brand. The company is also scheduled to begin production, late in the second quarter, of 24 new private label food items being introduced by a major West Coast grocery chain.

Type of Company:
A small cap gem that has the chance to be acquired or grow rapidly with accounts ranging from high end restaurants, to discount grocers and the airlines.

Stock Target: Overhill's stock price has room to keep growing from its already lofty $5.80 to at least $10 by the end of 2007.

OFI 1-yr chart
OFI

Source: Overhill Farms: A Small Cap Gem With High Potential