Alico - A Two Pillar Stock

Summary

• Significant asset value and significant earnings value.
• Potential downside case from citrus greening.
• Potential upside case from improved orange juice pricing.
• Potential sale of land from a water management project adds cash but reduces upside.
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Alico (NASDAQ:ALCO) is a large (probably the largest) producer of citrus in Florida. The company has a long history, having been founded to manage the land holdings of a railway from the 1800s. Over time they have sold land, leased mineral rights, run ranches, and planted citrus. The citrus has become the primary business of the company, although there is also a potential catalyst here related to water management rights.

Source: Alicoinc.com

The two pillar note in the title of this article refers to the fact that you can value the firm in two different ways: earnings or assets. The value of many firms is based on one or the other - a land bank company often produces little earnings but owns valuable assets. While many more modern business types have few tangible assets (and potentially minimal liquidation value) and are valued solely on their earnings. While Alico is a land company and therefore can also be valued on an asset basis, they also have are generating earnings and can be valued on that basis as well. There are a great many land companies that have been value traps for years (or decades!) because management doesn't sell the land and it doesn't produce much if anything in the way of earnings in the meantime. I think Alico is trading at approximately its fair value on an earnings or asset basis at present.

Sale of Alico Ranch and Other Non-Citrus Lands

The company has recently entered in to an option agreement with the State of Florida to sell 10,684 acres on the west side of their Alico Ranch property for $28.5 MM. This isn't a firm sale, but

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