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PriceSmart, Inc. – The ‘CostCo’ of Latin America

December 15, 2009 | About:
PriceSmart, Inc. engages in the ownership and operation of U.S-style membership shopping warehouse clubs in Central America and the Caribbean. These warehouse clubs sell basic consumer goods to individuals and businesses. The clubs offer a selection of products, including perishable foods and basic consumer items. They also provide ancillary services, which include food services, bakery, tire centers, and photo centers. As of July 7, PriceSmart operated in 26 warehouse clubs in 11 countries and one U.S. territory, including four in Panama; five in Costa Rica; three each in Guatemala and Trinidad; two each in the Dominican Republic, El Salvador, and Honduras; and one each in Aruba, Barbados, Jamaica, Nicaragua, and the United States Virgin Islands.


When Sol Price sold his U.S. – based PriceClubs to CostCo he was no longer allowed to compete with COST here at home. PriceSmart was developed to recreate the same experience in Central America and the Caribbean. Sol’s son Robert Price is now CEO and Chairman of the very successful discount chain. [Founder Sol Price died this week at age 93].


Business has been very good despite the poor economic climate. Recently announced earnings for FY 2009 (ended August 31) came in at $1.45 /share versus $1.30 in FY 2008. Here are PSMT’s per share (fully diluted) numbers as reported in their annual report.




FY*


Sales


C/F


EPS


Div.


B/V


Avg. P/E


Range


2005


24.02


d.0.52


d. 3.15


Nil


7.75


NMN


6.11 – 8.70


2006


25.24


0.61


0.30


Nil


8.10


31.2x


7.55 – 20.64


2007


30.13


0.88


0.44


0.32


8.36


32.6x


13.31 – 33.67


2008


37.65


1.67


1.30


0.32


9.27


20.3x


10.35 – 31.89


2009


42.89


1.85


1.45


0.50


10.27


11.7x


13.76 – 21.50


* FYs end Aug, 31st


Semi-annual dividends were initiated in 2007 at a $0.32 yearly rate that was raised to $0.50 per year in 2009. The next dividend announcement should come by next month with another hike likely. At the present rate, the current yield is already a decent 2.51% at yesterday’s close of $19.94 /share.


Zacks sees FY 2010 and 2011 estimates of $1.49 and $1.73 respectively making the multiple about 13.4x this year’s and approximately 11.5x next year’s expectations. Compare those P/Es with CostCo’s at 20.6x this year’s and 18.6x next year’s estimates. Also note the historical P/E levels for PSMT itself from the chart shown above.


A return to a still lower-than-normal 16 multiple would bring PSMT shares back to $23.84 by next summer and to a goal of $27.68 by the end of FY 2011. Those targets doesn’t seem out of line considering the excellent sales, earnings, dividend and book value growth since 2005. Note that PSMT shares hit peak trades of $31.89 and $33.67 in 2007 and 2008 when fundamentals were not as strong as they are today.


They have been occasional rumors that Wal-Mart may consider a buyout of the whole company as a cheap and quick way to expand their Latin American operations.


Summary:


PriceSmart is a well-run discount retailer that is thriving even during a major economic downturn. The valuation looks compelling and the yield is better than what’s now available on money markets and 1 – 2 year CDs.


Buyers today will qualify for the next semi-annual dividend (expected in January) and position themselves for total returns that look quite good. The takeover possibility, while unpredictable, adds a potential bonus to the expected projections.





Disclosure: Author is long PSMT shares. I previously wrote up PSMT on May 27, 2009 at a price of $15.75 /share.

About the author:

Dr. Paul Price
http://www.RealMoneyPro.com
http://www.TalkMarkets.com

Visit Dr. Paul Price's Website


Rating: 3.1/5 (15 votes)

Comments

Dr. Paul Price
Dr. Paul Price premium member - 4 years ago




PriceSmart Inc. (PSMT) At 12:31PM ET: 23.38 1.59 (7.30%)

Upgrades & Downgrades History

UPGRADES & DOWNGRADES HISTORY

Date ……………Research Firm………………… Action ………… From / To

5-Mar-10 …. Global Hunter Securities …. Upgrade ……… Neutral / Buy

18-Dec-09 …Global Hunter Securities . .. Initiated ……….. Neutral

On Dec. 18, 2009 PSMT closed at $19.89 /share.

On Mar. 5, 2010 PSMT closed at $121.79 /share.

What a great time to go from neutral to Buy!

PSMT was recommended here at $15.75 last May BEFORE the momentum crowd decided it was ‘ok to buy’.

Dr. Paul Price
Dr. Paul Price premium member - 4 years ago


First recommended at $15.75.

Now trading for $23.58 or plus 49.7% + dividends.

I wonder what it would have to have done to get 2 stars?

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