The company offers more than 300 products produced and sourced from more than 30 countries, which are then distributed in over 80 countries through retail, wholesale, and foodservice channels.
In my view, Dole is rather quite attractively priced, and the stock should have further upside. I am bullish on the stock.
The company is the most prominent one among its peers, both from an aggregate production, and brand value perspective. Dole IPOed this past summer, and according to its F-1 filing, Dole is almost twice as large as its next largest peer in terms of total production.
It owns 109,000 acres, 16 vessels, five salad manufacturing plants, and 162 distribution and manufacturing facilities. (See Insiders’ Hot Stocks on TipRanks)
Despite Dole being an industry leader, the industry itself is rather trivial with minimal prospects. The fruits and vegetable industry is a textbook example of an industry with no barriers to entry, razor-thin margins, and minimal growth prospects.
However, Dole has grown revenues by just over 5% per year over the last 15 years, driven by internal growth, and smart acquisitions. Following the company’s 2006 separation from Fyffes, Dole has completed more than 100 acquisitions.
Specifically, these acquisitions have powered expansion enough to cause revenues to more than triple during this time, from $2.1 billion in 2006 to $7.1 billion last year.
Despite Dole being the largest company amongst its peers, it is currently valued at around $1.4 billion, or 0.3x its annual sales. Of course, since the industry suffers from slim margins, it makes sense that the P/S multiple is so humble. Still, the company has been consistently profitable, and is slowly, but gradually, growing.
Dole is trading at just 9.8 times its FY 2021 projected net income. For context, Fresh Del Monte Produce (FDP), a competitor, is trading at a forward P/E of around 14.3. Produce consumption is expected to grow 2.7% per annum, higher than the 1.9% of the last five years, following an increased interest in healthy eating and higher nutritional awareness these days.
In that regard, with a single-digit P/E ratio, modest but respectable growth prospects, and a predictable business model, Dole could be a solid contender for a valuation expansion moving forward. Hence, the stock likely holds a compelling short-term upside, though it could be a robust long-term holding as well.
Finally, Dole’s overall financial position seems to be rather healthy, with $4.6 billion in total assets and $3.4 billion in total liabilities. The company holds around $358 million in cash, which should be enough to navigate its working capital, while long-term debt stands at $548 million, which is quite manageable considering Dole’s consistent profitability and interest coverage.
Wall Street’s Take
Turning to Wall Street, Dole has a Moderate Buy consensus rating, based on three Buys, one Hold, and one Sell assigned in the past three months. At $19.60, the average Dole price target implies 28.6% upside potential.
Disclosure: At the time of publication, Nikolaos Sismanis did not have a position in any of the securities mentioned in this article.
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