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Landec Corporation

April 30, 2011 | About:
wax

wax

Author's Website
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Landec Corporation (Nasdaq: LNDC) and its subsidiaries design, develop, manufacture and sell polymer products for food and agricultural products, medical devices and licensed partner applications that incorporate the company’s patented polymer technologies.

The company has two proprietary polymer technology platforms: 1) Intelimer® polymers, and 2) hyaluronan (“HA”) biopolymers.

The company’s HA biopolymers are proprietary because they are formulated for specific customers to meet strict regulatory requirements. The company’s polymer technologies, along with its customer relationships and trade names, are the foundation, and a key differentiating advantage upon which the company has built its business.

The company sells specialty packaged fresh-cut vegetables and whole produce to retailers and club stores, primarily in the United States and Asia through its Apio, Inc. subsidiary, Hyaluronan-based biomaterials through its Lifecore Biomedical, Inc. subsidiary, and Intellicoat® coated seed products through its Landec Ag LLC subsidiary.

Basis

Financial information presented in this report for Landec Corporation, is based on the company’s most recent SEC Form 10-K filing for year ending May 30, 2010, as filed with the Securities and Exchange Commission on August 12, 2010.

Short-Term Investment

The stock closed recently at $6.48, with Resistance at $7.08, a 9% increase from the recent close, First Support at $6.16, a 5% decline from the recent close and Second Support at $6.15, a 5% decline from the recent close. Should the stock price break through Second Support, the next support level is $5.30, an 18% decline from a recent close.

Long-Term (5 Year Hold) Investment

In review of the company’s latest annual financial information, we note that the Current Ratio, the Quick Ratio, and the Cash Ratio, we all what we consider investment quality. In addition, Debt to EBITDA, and Debt to Equity, were with in our investment quality parameters.

What we found lacking was the company’s Free Cash Flow, at ($1.15). As value investors, negative free cash flow is just a huge red flag. Accordingly we checked our FY09 valuation worksheet and found free cash flow of $0.32, meaning a year over year growth in free cash flow of (460%).

Certainly negative free cash flow growth is not always cause for alarm. But it is something the average investor should investigate prior to considering a position in this stock.

Earnings Growth

We are value investors, attempting to determine the value of an entire company based on its most recent audited financial information. As such, we simply refuse to pay for earnings growth and make no inclusion of it in our valuation estimates.

However, we realize that many investors care a great deal about earnings growth and base their investment decisions on the spread between year over year earnings growth and the current PE.

In the case of Landec Corporation, the company was had year over year earnings growth of 13%, ending FY10 with earnings of $0.38 per share. With a current PE of 17, the spread between earnings growth and the PE is a bit less than 1, meaning that for a value investor considering earnings growth, a fair value for the stock is about $7.

Valuations

Based on our review of the company’s latest annual financial information we think a Reasonable Value Estimate for the company is in the $13 to $15 range. Assuming all due diligence was performed prior, we would set a Buy Target in the $8 to $9 range, a First Sell Target in the $15-$16 range, and a Close Target in the $17-$19 range.

Based on our assessment of the company’s financial information we reviewed, we believe a reasonable financial risk multiplier is 48. Accordingly, for the more risk averse value investor, we would set a Buy Target in the $4 to $5 range.

Considering a recent close of under $6.50, the potential for growth, an estimated Merger and Acquisition payback of 11.1 years (assuming EBITDA remains the same), and Free Cash Flow of $(1.15), we have no interest in adding the company to the Wax Ink Portfolio at this time.

Wax



About the author:

wax
Wax Ink is a baseline equity research company not licensed or registered with any government agency

Visit wax's Website


Rating: 3.6/5 (17 votes)

Comments

eurotrader
Eurotrader - 3 years ago
one of the main reasons this year for the negative cash flow

was the acquisition of Lifecore Biomedical in which Landec

used $39.68million of its own cash.
eurotrader
Eurotrader - 3 years ago
if Landec can produce more compelling news releases,

I think more premium could be built into the share price

with influx of investor expectations toward the company.

right now, you have to dig to find anything related to the company.

eurotrader
Eurotrader - 3 years ago
article on Apio

www.digitaljournal.com/pr/285363

eurotrader
Eurotrader - 3 years ago
I read this everyday like clockwork...

et
eurotrader
Eurotrader - 3 years ago
finally some movement in Landec stock price.

share price has been acting differently lately

even in the down Market, perhaps someone is

recognizing the value Landec holds within. I suppose

time will tell, been following this stock for a very long time

and the market has yet to reward it. good trades to all.

et

,,,,,¥¥¥¥¥
eurotrader
Eurotrader - 3 years ago
finally Landec acting like a normal stock,

will this time be different and finally base on

a new pps and stabilize? that is the question.

¥
eurotrader
Eurotrader - 3 years ago
Landec really gaining some ground

never seen it act this good. Maybe somebody

really recognizing something of value in LANDEC jmo

et
eurotrader
Eurotrader - 3 years ago
holy cow, Landec holding up remarkably well in this type of market.

above all expectations.

earnings out the 27th July, not sure what to expect but loving the solid price appreciation.

good trades

et

,,,,,¥º¥º¥
eurotrader
Eurotrader - 3 years ago


www.thestreet.com/story/11182845/1/landec-corporation-stock-upgraded-lndc.html
eurotrader
Eurotrader - 3 years ago
most frustrating stock I have ever dealt with.

will continue to monitor the situation.

hopefully someday LNDC will make a move forward.

practice makes perfect.

ET

,,,¥¥¥
eurotrader
Eurotrader - 3 years ago
volume in Landec has been unusual lately, strong support

on L2, not sure if algo traders are doing it, price is being

confined in the $6 range, strange with so much volume flowing in,

short interest down to 717k shares with aprox 5 to 7 days to cover

at current volume.

I remain positive toward Landec.

EuroTrader

,,,,,¥¥¥¥¥
yentrader7
Yentrader7 - 2 years ago
Landec making some headlines lately, acquisitions

to be accretive, maybe Wax can make an update on his

analysis he did on 4/30/11, seems like LNDC still undervalued,

and now Landec has two hedge funds being active in management BOD.

still accumulating, seems like still under the radar, shorts cover your short bet.

¥en Trader
yentrader7
Yentrader7 - 2 years ago
I like the fact that a 13D was filed by Wynnefield Partners small Cap Fund

Wynnefield disclosed holdings of 2,568,271 shs or a 10.1% of O.S.

seeking a position on the Board of Directors.

¥en Trader

____¥
yentrader7
Yentrader7 - 2 years ago
earnings release July 31, 2012 after market close

¥ trader
yentrader7
Yentrader7 - 2 years ago
insider purchase recently, Landec LNDC been holding up

fairly nice in the market, seems accumulation still ongoing.

my guess is LNDC could see mid teens by end of summer,

¥ Trader
yentrader7
Yentrader7 - 2 years ago
short interest reported for 6/29/12 was 792,355sh down 16863shs

from 809218shs on 6/15/12 with 5.5 days to cover if volume stays in the

150k sh/day range.....¥_trader
yentrader7
Yentrader7 - 2 years ago
nothing else much too report here, just waiting

for earnings, don't think any surprises are lurking

in the background. all for now

¥ Trader
yentrader7
Yentrader7 - 2 years ago
slow and steady accumulation in Landec

acting real nice and smooth, volatility is nil/

¥ Trader
yentrader7
Yentrader7 - 2 years ago
Landec drifting sideways into upcoming earnings report July 31st AMC

4th Qtr and Year-end 2012

should be an interesting one.

Yen Trader
yentrader7
Yentrader7 - 2 years ago
nothing new.................

just waiting, again,,,,

yentrader
yentrader7
Yentrader7 - 2 years ago
And there you have it, earnings out and in line.

looking forward to more from Landec.

Yentrader
yentrader7
Yentrader7 - 2 years ago
this company might finally be on the radar scope of many

Yentrader

volume swelled today,, nice buying
yentrader7
Yentrader7 - 2 years ago
anybody interested should read the earnings call transcript

supplied by Seeking Alpha, really good imo

Yentrader
yentrader7
Yentrader7 - 2 years ago
just pondering how far WYNNEFIELD Capital can achieve its goal to increase

shareholder value if they don't get a Board seat?

Yentrader
yentrader7
Yentrader7 - 2 years ago
WynneField Capital been patient since 2004 with Landec holding,

I'm holding a core position to see what materializes.

YenTrader
yentrader7
Yentrader7 - 2 years ago
Looks like Landec about ready to make another new high shortly........

holding for the home stretch.....good trades

Yentrader
yentrader7
Yentrader7 - 2 years ago
52 week high for Landec.......

Yentrader
yentrader7
Yentrader7 - 2 years ago
where does Landec head to next, coming up on the Sept 18 2008 closing price of $9.68...

stay tuned in

Yen Trader
yentrader7
Yentrader7 - 2 years ago
well, Landec hit a high of $9.72 this morning, looks like a little sideways consolidation

here and then perhaps a move over $10. wonder how the shorts are feeling today?

hope not too bad,

best of trades

Yen Trader

yentrader7
Yentrader7 - 2 years ago
where can I find another Landec?

be nice

yentrader

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