Bear of the Day: Fresh Del Monte Produce (FDP) - Bear of the Day
December 09 2013 - 4:37AM
Zacks
While many stocks have soared so far in 2013, those in the
commodity production space have had a much rougher time. Investors
have shunned commodity producers by and large, as the focus has
been on growth stocks, or companies in more cyclical sectors
instead.
Although much of the focus has been on the metal mining space,
those in the agricultural operations segment have also faced severe
weakness as of late too. In particular, one company that has been
weak and may continue to face resistance in this space is
Fresh Del Monte Produce (FDP).
FDP in Focus
FDP produces tropical fruit such as bananas, pineapples, but also
melons and ‘deciduous’ fruit as well. This includes grapes, apples,
peaches, etc. giving the firm a wide variety of production across a
number of popular fruits.
While this might sound like a decent business to be in, FDP has
definitely struggled as of late. This has largely been due to
rising costs, and with a lack of any real competitive advantages,
the pain may continue for Fresh Del Monte Produce for quite some
time.
Estimates
This poor trend for FDP is best exemplified by the recent earnings
history of the company. Over the past four quarters, there has only
been one beat, and there have been two misses of at least 75%. This
latest miss was especially ill-received by the market, as the stock
plunged by nearly 10% following the news.
If this wasn’t enough, estimates have also been falling for FDP
across the board. Two months ago, the consensus for the current
quarter was for a loss of three cents a share, but this has now
fallen to a loss of 22 cents a share. Furthermore, the current year
estimates have slumped from $2.11/share two months ago, to
$1.63/share today, suggesting that the outlook for FDP is not
looking very good.
So with these plunging estimates Fresh Del Monte Produce is now
expected to have an earnings contraction of 36% (yoy) for the
current year. While the following year estimates are once again
showing growth, we are very bearish on FDP, assigning this company
a Zacks Rank #5 (Strong Sell).
Better Choices
Given the broad trends in the commodity world, it is tough to find
good picks in the agricultural operations space. In fact, the
current industry rank for the segment is in the bottom 10%,
suggesting that there are plenty of better choices out there
instead.
However, if you are dead-set on getting into this space, it may be
a good idea to look to the Agriculture/products segment instead.
This corner of the commodity world is doing much better from
a rank perspective—top 30%-- and it even has a number 1
Ranked stock,
The Andersons (ANDE).
This company focuses on the grain market, as opposed to FDP’s fruit
focus, and it has seen a solid history at earnings season. In fact,
ANDE delivered a huge beat of nearly 50% in the latest report, and
it has been seeing solid levels of estimate revisions lately too,
suggesting this might be a better approach to agricultural
investing, especially when compared to the struggling Fresh Del
Monte Produce.
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