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Farmer Brothers (NASDAQ:FARM) might just be too cheap to pass up. After all, its stock price has been creamed beyond sanity, due to integration issues associated with its recent $45 million purchase of Sara Lee's Direct Store delivery business along with a nasty spike in green coffee prices.Couple that with recent management changes, an elimination of its cash dividend and a weak US economy, and you have a share price closely resembling 30 year lows.

A recent run up in the share price, could have been attributed more to technical factors than fundamental. The fact that the shares were extremely oversold, possess a very low share float (50% are owned by insiders) and carry a high short interest (737,000 shares short in mid December) could have been the catalyst for the shares big move higher. In merely a five month period (Sept. 2011 to Feb. of 2012) the stock exploded nearly threefold, from a low of $4.64 to $12.07. Since then, a profit taking correction has retraced about 68% of those gains, creating a nice buying opportunity. Short interest in that timeframe has fallen more than 50% to 309,000 shares, as many speculators holding short positions apparently booked profits, by electing to cover.

Value characteristics evident: The stock is cheap, selling at less than book (there is only $5 million of goodwill left on the books) and only 15 times its 2013 earnings estimates ( according to FARM's lone analyst-Sidoti & Co). Its balance sheet is squeaky clean, and it controls substantial real-estate holdings through its corporate headquarters complex, its 50 branch warehouses ( ranging from 2500 to 50,000 sf) and a Oklahoma City distribution center. The real estate represents potential hidden value (it is onits books at cost rather than market value) that could be unlocked/monetized through a lease/ buyback scenario.

Second quarter improvement: The coffee roaster's latest quarter may have provided a glimmer of hope: sales were up 4% to $121.5 million, gross profit margin stabilized at 36%,(flat versus the previous year's quarter) and expenses were slashed- selling expenses fell 600 basis points to 31.1%, while its G &A burden dipped 340 basis points to 7.7%. Green coffee prices have fallen 33% in the last five months, so there is hope that the company will eventually reach its normalized gross profit margin of 45%. Although the company lost nearly $2 million in its commodity hedging programs in the quarter, it still was cash flow positive, and managed to land a couple of very large accounts (it is now supplying coffee to the US Congress).

Other developments: The company is attempting to get lean and mean in its turnaround endeavors. It has already frozen two of its three pension plans (a $4.1 million charge has been recorded) and is in process of eliminating its third. Its new CEO, Michael Keown, has put his money where his mouth, as evidenced by his recent purchase of 15000 share stake in the open market (certainly a confidence booster). It is time to bet big on this stock. They are on the cusp of a successful turnaround , raw coffee prices are falling and the company's cost structure is improving. The risk to reward scenario is clearly compelling at this juncture, making this stock a logical choice for the value investor to "bet the farm on"!

Source: Farmer Bros: Time To Bet The Farm On FARM