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Nicholas Kitonyi
Nicholas Kitonyi
Articles (404)  | Author's Website |

Should You Pounce on Calavo Growers' Rebound?

The stock is up more than 11%

December 29, 2020 | About:

Shares of packaged foods company Calavo Growers Inc. (NASDAQ:CVGW) are up more than 11% since last Tuesday. The company's stock had fallen sharply last week following the announcement of its most recent quarterly results.

Calavo reported fourth-quarter 2020 revenue and earnings that missed analysts' expectations, subjecting the stock to a short-term sell-off. However, after diving deeper into the numbers, it looks like investors' optimism towards the stock has returned.

The Santa Paula, California-based fresh foods company specializes in packaging and distribution of fruits, including avocados and mangoes, among others.

Highlights from recent quarterly results

In the company's most recent quarterly results for the period ended Oct. 31, Calavo posted a 24.44% decline in adjusted earnings per share to 34 cents. This was significantly below the consensus Street estimate of 64 cents.

Revenue for the quarter declined 19.76% year over year to $234.43 million, which again missed the average analyst estimate of $256.07 million.

The company's fiscal 2020 revenue fell 11% from last year to $1.1 billion, while the adjusted earnings per share declined 48% to $1.57.

CEO James E. Gibson said the company witnessed increased avocado volumes due to a rise in popularity in the U.S. and internationally. The oversupply had a significant impact on the average selling price, which fell by 22%.

"With strong crops out of both Mexico and California, supply in the fourth quarter was plentiful, lowering the average selling price by 22% versus the year-ago quarter, when supply was very constrained," Gibson said.

Calavo raised its dividend per share by 4.5% to $1.15, which was paid at the start of the month. The company's total debt increased to $92.33 million at the end of October, up from $31.38 million at the end of the third quarter. This shouldn't cause alarm because the company's current ratio of 1.28 is still at an attractive level from the perspective of gearing.

Valuation

At the current price of $69.02, shares of Calavo are trading at a trailing price-earnings ratio of 43.96. This can be considered an expensive valuation for some companies.

However, shares of close rival Fresh Del Monte Produce Inc. (NYSE:FDP) trade at a trailing 12-month price-earnings ratio of 51. This suggests that Calavo's valuation is more attractive than Del Monte's. Therefore, it might not be too late to buy the rebound heading into 2021.

Disclosure: No Positions in the stocks mentioned.

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About the author:

Nicholas Kitonyi
Nicholas is the founder of CAGR Value. He is a financial analyst with extensive experience in investment research and stock market analysis. His analysis has been featured on several research sites.

Nicholas has solid knowledge of both U.S. and European markets. His investment style is focused on undervalued plays and growth stocks. Nicholas classifies himself as a swing trader and likes to trade GBP/USD, gold and FTSE 100, among other liquid instruments.

Visit Nicholas Kitonyi's Website


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