Dole is the largest producer of fresh fruits and vegetables in the world. Based in California, Dole has operations in 90 countries around the world and has recently been expanding into the high margin packaged fruit business with products such as their Dole Shakers and Dole Fruit Crisps. They also own or lease 117,000 acres of land which could be used, at least partially, to pay down some of their massive debt and liabilities if sold, which we will get to later.
Here are my valuations of Dole (NYSE:DOLE), my reasonings for buying, and some of the risks the stock entails.
Dole asset valuation done on 5-19-2012. All numbers are in millions of US dollars, using March 2012 10Q and 2011 10K.
These valuations are done by me, using my estimates, and is not a recommendation for you to buy the stock. Do your own homework.
|Assets:||Book Value:||Reproduction Value:|
|Accounts Receivable (net)||739||628|
|Deferred taxes-tax liabilities||185||55.5|
|Total Current Assets||1,971||1,260|
689 million of IA is Dole's estimate of what the DOLE brand is worth.
Number of shares = 88m
- With IA: 4,025/88=$45.74 per share
- Without IA: 3,285/88=$37.33 per share
- With IA 2294.6/88=$26.08 per share
- Without IA 1924.6/88=$21.88 per share.
Current share price=$8.96 per share
Second Dole valuation:
Done on 5-19-2012 using March 2012 10Q and 2011 10K. Numbers in millions of US dollars.
- Cash and cash equivalents=106 + short term investments of 0=106
- Number of shares=88
- Total Current Liabilities=1,090
- Short term investments+cash and cash equivalents-current liabiliites=-984
- -984/88= -$11.18 in net cash per share
- EBIT of 300 taken from 2011 10K
- 5X, 10X, and 14X EBIT= 5X=1,500, 10X=3,000, 14X=4,200
- 1,500 + C &CE above of 106=1606, 3,000 +106=3,106, 4,200+106=4,306
- 1606/88=$18.25 per share
- 3106/88=$35.05 per share
- 4306/88=$48.93 per share
Current price is $8.96 per share
Current market cap=782.9 million
EV=MKT cap+debt,minority interest & preferred shares- total C&CE
EV=782.9+1626=39=0-106=3,381 m EV/EBIT=11.27
Dole currently owns 117,000 acres of land, mostly in Hawaii. Taking 117,000 X $5000, which I think is a conservative estimate of land prices in Hawaii, equals $585 million in potential worth of land.
585/88= $6.65 per share potential of land per share, with again a current share price of $8.96 per share.
Subtracting my estimate of their potential land value you get the rest of Dole, cash, and debt for $2.31.
Being a very conservative investor, normally I would never touch a stock with this much debt in relation to market cap, EBIT, cash on hand, and a negative net cash number, even with the massive margin of safety.
Another knock against it is that it is a fresh fruit business, which makes it a commodity business. Commodity businesses are generally prone to widely fluctuating prices of their products, revenues, and margins.
However, the management has has been paying down debt slowly over the past several years. Dole is also currently under strategic review by their directors and management to see how they can unlock lost value and pay down debt at the same time.
In the article they state that "As part of this review, the alternatives we may consider include a full or partial separation of one or more of our businesses through a spin-off or other capital markets transaction, as well as other alternatives that will enhance shareholder value. We are committed to enhancing shareholder value, and this review is a company priority."
Normally I would take the above statement with a grain of salt, but their biggest shareholder, Mr. David Murdock, currently owns 58.1% of all shares. He originally brought Dole public again in 2009 at a price of $12.50 per share meaning he has already lost several hundreds of millions of dollars. Obviously he would want to do what is in his own self interest and hopefully what is best for the shareholders to make that money back, and unlock further value. I think they are going to find while doing their strategic review that they should either sell off some assets, including some of the land, or more likely spin off one or more companies to help pay down some of their debt.
Personally I think they should move most of their resources into the packaged fruits section of their business, as it has the highest margins by far. Concentrate less on the fresh fruit section by selling or spinning off at least a portion of that business. Sell or spin off the fresh vegetable section outright, and either lease or sell part of their land holdings which could substantially pay down debt and raise the stock price. They would also be a more focused company if the above were to occur as well.
Disclosure: I am long DOLE.