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Farmer Bros. Is A (Speculative) Buy

Jun. 07, 2020 12:19 PM ETFarmer Bros. Co. (FARM)3 Comments
Patrick Doyle profile picture
Patrick Doyle


  • I continue to think this company is troubled, as evidenced by the ongoing losses.
  • That said, I think a troubled company can be a good investment at the right price, and I think the shares have reached "right" territory.
  • In addition, I think investors would be wise to follow the lead of insiders, the people who know this business better than anyone.

Since writing my bearish piece on Farmer Bros. Co. (FARM), the shares are down about 41% against a gain of about 3.25% for the S&P 500. I have a few reasons for revisiting the name. First, the company has obviously published new financial statements, so they deserve comment. Second, a stock that’s trading at $9.50 is by definition a less risky investment than the same stock when it’s trading at $16.30, so it may be worth buying at current levels. Finally, the company took a number of steps to help lessen the impact of the Covid pandemic on operations, including drastically reducing the workforce, furloughing many others, reducing executive compensation by 15%, and cutting board compensation for the quarter. This holds out the possibility that the company may actually turn a profit in the near future.

Financial Snapshot

In my previous article on Farmer Bros., I characterized their financial history as “troubled” because there seemed to be a disconnect between revenue and net income. Revenue has grown slowly over time (up at a CAGR of about 1.7% over the past several years, while loss from operations and net losses have exploded. I also noted that the business seems to be highly cyclical.

It seems that little has changed since I last wrote about the business. In spite of the fact that revenue in the most recent period was down “only” 7.4% relative to the year ago period, net loss from operations rose by nearly 300%. Net loss was “only” $27.3 million in the most recent period relative to a $64.5 million loss last year. This improvement was impacted by a few factors. First, during the most recent period, the company suffered a goodwill impairment charge of $42 million. Offsetting that somewhat, the company realised a gain on the sale of assets to the tune of ~$23.375 million. Additionally, the company enjoyed a $1.222 million income tax benefit in the most

This article was written by

Patrick Doyle profile picture
I'm a quant investment newsletter writer who marries fundamental analysis with the latest research in momentum. Over the past few years, I’ve developed a piece of software that helps me track the level of optimism and pessimism embedded in stock price. I seek to challenge the assumptions embedded in price by profitably exploiting the disconnect between what the market thinks and what is a likely outcome. I invest in those companies that have a greater than average chance of giving us all a surprise in the next few months.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in FARM 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (3)

Mark Krieger profile picture
great article...thank you
And.. It's gone.
Derek Capo profile picture
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