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Lowered EPS Estimates Present Opportunity for Produce Giant

|Includes:Chiquita Brands International Inc. (CQB)
By David, of PSW 

The Oxen Report: Lowered EPS Estimates Present Opportunity for Produce Giant

Hello everyone. We are in the heart of the earnings season, and it is time for another Overnight Trade opportunity for you all. On Tuesday, we got involved with a successful trade in Century Aluminum Co. (NASDAQ:CENX). The company reported earnings that appeared below estimates, but they were actually successful earnings once a one-time charge was refigured into the EPS. We got involved at 14.10 on Tuesday, looking to sell around the open of Wednesday. The stock opened at 14.20 and jumped to 14.40s within minutes. I exited at 14.35 for a 1.75% gain. The stock continued to skyrocket into the 14.60s. Let’s hope today’s selection can have as much success.

Overnight Trade of the Day: Chiquita Brands International Inc. (NYSE:CQB)

Analysis: Chiquita is the lovely banana producer based in my childhood hometown of Cincinnati, OH. The company produces bananas in Latin America and sells them throughout North America and Europe. They also produce other produce, healthy snacks, and packaged salads. The company is definitely the market leader in bananas, and the company has actually done quite well in the market’s downturn. Yet, the company is undervalued and positioned for a bounce on what should be better than expected earnings. One year ago, the company reported record numbers and is expected to continue that trend, so why the gap?

At the end of March, Chiquita released some rather bearish news that has declined the stock over 5% in value over the past couple weeks. The company commented that they do not to expect to hit their EPS mark from one year ago due to lowered food prices in Europe. The company has seen an 11% decline in banana prices over one year ago, and the company believes that this will have a negative impact on results. Now, the company hit an EPS of 0.51 one year ago. This quarter, prior to the news, they were expected to be at 0.59 with a revenue $870 million. If the company saw an 11% decline in prices, they would see at most a $90 million decline in revenue, but there industry is not all in Europe. They have about 50% of their revenue coming from Europe. That is a $45 million decline. An $825 million revenue would put their EPS around 0.30. They made $850 million in revenue in Q1 of 2009 and had an EPS of 0.51. They had $800 million in revenue in Q3 of 2009. That put their EPS at 0.11. Right in the middle is around 0.31. 

So, why do I like this? Their EPS estimates are at 0.24. Analysts have completely slashed EPS estimates, which should have occurred. The numbers, however, are too low. The company definitely was cautious, but I do not think things will be as poor as these numbers are expecting. Fresh Del Monte Produce Inc. reported earnings near the end of March and have industry in Europe. They beat estimates then. I think these numbers are way too low and are too cautious. 

If CQB does, therefore, beat EPS estimates as I expect they will, the stock has a lot of potential. The stock is near its lower bollinger band, has been oversold over the past three weeks, and the stock is not jumping up like many other reporting companies during the trading session. Further, CQB has commented that they still expect to beat last year’s earnings. This means that the outlook aspect of the report should be very good and bullish. I am expecting a solid beat and pretty large jump tomorrow morning from it.

Get in today and don’t get too caught up in after hours and pre-market numbers like we did with CENX.

Entry: We are looking to get involved at 15.70 - 15.80.

Exit: We are looking to exit tomorrow morning on any gain or loss right near market open.

Stop Loss: None

Good Investing,

David Ristau 
Stocks: CQB