The Bottom Fishing Club: Fresh Del Monte Produce

Summary

• Del Monte has a strong underlying asset valuation at a time when few other U.S. equities can say the same.
• Wall Street is forecasting a near double in profitability during 2021.
• The annualized 3.5% shareholder capital return rate may be worth the price of admission by itself.
• The stock price appears to have broken out of a nine-month base pattern in February.

Fresh Del Monte Produce (NYSE:FDP) may be poised for a nice run higher in price. In late 2020, the stock valuation reached a decade low, using basic fundamental comparison ratios. Operating income is projected by Wall Street analysts to almost double 2020’s result. And the stock price just broke out above a nine-month base pattern. I am particularly attracted to Del Monte as another food inflation hedge to counter record money printing by central banks globally. All told, this brand-name food company has plenty of pent-up value as a foundation, while much brighter operating results should serve as a catalyst for improving levels of investor interest throughout the coming year.

The Business

Fresh Del Monte grows, markets, and distributes fresh fruits and vegetables in North America, Europe, the Middle East, Africa, and Asia. Its fresh produce includes pineapples, melons, grapes, apples, citrus, blueberries, strawberries, pears, tomatoes, peaches, plums, nectarines, cherries and kiwis, and avocados. The company prepares cut fruits and vegetables, creates juices and other beverages, plus packages a variety of fruit/vegetable snacks. The company also sells poultry and meat products, and transports ocean freight. Del Monte manufactures plastic and box products, such as bins, trays, bags, and boxes.

Image Source: Company Website

Fundamental Review

Fresh Del Monte has just endured a rough couple of years for operating profitability. Everything from weather issues, to new trade barriers, to asset write-downs have been part of the equation for lower results. However, Wall Street is forecasting a very strong recovery in 2021, especially as pandemic travel and shipping issues subside. Below is a graph of the analyst consensus EPS forecast around $1.80 today.

Net profit margins, although low in 2020, were still better than a variety of competitors hamstrung by COVID-19 problems for both supply and demand. Using Seeking Alpha’s list of peers and competitors

Analyst’s Disclosure:I am/we are long FDP, SPTN. 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.

I may initiate a long position in ADM, KR, KO, SEB over the next 72 hours. This writing is for informational purposes only. All opinions expressed herein are not investment recommendations, and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisor capacity and is not a registered investment advisor. The author recommends investors consult a qualified investment advisor before making any trade. This article is not an investment research report, but an opinion written at a point in time. The author's opinions expressed herein address only a small cross-section of data related to an investment in securities mentioned. Any analysis presented is based on incomplete information, and is limited in scope and accuracy. The information and data in this article are obtained from sources believed to be reliable, but their accuracy and completeness are not guaranteed. Any and all opinions, estimates, and conclusions are based on the author's best judgment at the time of publication, and are subject to change without notice. Past performance is no guarantee of future returns.