IN PICTURES: How To Make Your First $1 Million
A Global Foods Giant
It's been six years since produce purveyor Dole Foods (NYSE: DOLE) has traded on the public markets. Chairman David Murdock rescued the company from bankruptcy 20 years ago and then took it private in 2003. With 87.4 million shares of common stock outstanding, Dole Foods went public with a market cap of about $1.1 billion with Murdock as the principal shareholder. However, the company's IPO did not turn out as planned. Dole priced 35.7 million shares at $12.50, under the $13-$15 range it hoped to garner for its stock. The stock has fallen since then, trading in the low $12's. Analysts and investors point to debt as the reason behind Dole's poor performance. Early before the IPO, Dole added a new $300 million convertible debt offering, adding to its pre-IPO debt now equaling $2 billion. The fruit company used its proceeds of $446 million to help pay down those obligations. However, this poor early market performance may allow investors to gain a market share leader.
The Case For Investment
Dole has the advantage of being either No.1 or No.2 by market share in most of the categories in which it competes, outshining its two major competitors, Chiquita Brands (NYSE: CQB) and Fresh Del Monte Produce (NYSE: FDP). In addition, the company has been focusing hard on its packaged foods division. Nearly two-thirds of its developed products are still on the shelf nine years after launch. The average for Dole's competition is just one year. Other fresh-food producers on average find success only 20% of the time.
Dole also benefits from a truly global brand, offering its products in more than 90 countries, both developed and emerging. The company receives 70% of its sales from fruit, which is still seen as a luxury in certain parts of the world. As developing nations become wealthier, they will crave more of these products. Currently, the developed West eats twice as much produce per person as non-developed nations, indicating room for growth.
On the profit front, Dole has been improving. In 2008, the company reported net income of $123 million compared with losses of $54 million in 2007 and $87 million in 2006. Sales have also been steadily rising. Total sales in 2008 were $7.6 billion, up from $6.8 billion the year before. Its growing packaged-foods division produced nearly $1 billion in additional sales.
Bottom Line
As a premium producer, Dole should command a premium price versus its peers. Using the same valuations given to its two major competitors, Dole should see a price around $21 a share. However, the company's heavy debt position is weighing on the stock. If the market continues to price shares lower, a contrarian bet may be in order for longer-term investors. While the market isn't giving away the store for free just yet, Dole might make a good watch list candidate for any value investor.
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