Fresh Del Monte Produce: A Quality Business With Over 48% Upside Potential To Fair Value

Summary

• Fresh Del Monte is the type of simple company anyone can understand - they source, trade, and produce bananas, pineapples, avocados, and other fresh fruits.
• The increasing consumption of these products has allowed them to increase their revenue by 50% over the last decade, which has allowed for greater profitability throughout the cycle.
• Yet, due to unfavorable conditions out of their control, such as the prices of fruit, earnings turned negative, resulting in the suspension of the dividend.
• Once prices inevitably recover, the company should be able to make free cash flow between 2 and 300 million, resulting in a 15% total yield at current prices.
• Asset value, along with stock buybacks, also provides a margin of safety, making this the perfect stock for value investors.

Overview

Fresh Del Monte Produce (NYSE:FDP) is the type of company anyone can understand. Founded in 1886, the company originally produced a premium blend of coffee for the Hotel Del Monte in California, transitioning into both canned foods and selling other types of fresh produce throughout the 20th century. After merging with R.J. Reynolds industries in 1979, the company was split into two entities and in 1989, Del Monte Tropical Fruit and Del Monte Foods, with the former turning into the company we know today as Fresh Del Monte Produce. As part of the split, they took the part of the business involved in selling different fruit and vegetables.

Fast forward to today and the business has grown significantly from the small operations they once had. They now employ over 40,000 people around the globe and own 47 distribution centers and 9 shipping vessels.

The business is also now far more diversified than it once was, with their main products including bananas (38%), Fresh cut products (21%) Gold Pineapples (11%), Prepared Foods (8%) and Avocados (7%).

By making prudent acquisitions, the company has been able to expand its reach globally and slowly increase its market share in its different product categories. For example, they acquired Mann Packing, a leading supplier of fresh vegetables last year, which should allow them to continue to integrate their business into all parts of the food supply chain, from producing the food to shipping it to your local supermarket.

They are now one of the biggest fresh food producers in the world and, especially in North America, are a company which millions are indirectly affected by without realizing it on a day-to-day business. They are now the biggest marketer of fresh pineapples and the 3rd biggest marketer of bananas worldwide. Because of this, they now have a very strong brand, with

Analyst’s Disclosure:I/we have no positions in any stocks mentioned, but may initiate a long position in FDP over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.