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Monday, June 22, 2009

Flower Foods (FLO) Bust out the Oven this stock is ready to Cook

As one of the nations leading producers of bakery goods, Flowers Foods (FLO -Investor Details) operates popular brands such as Nature's Own, Cobblestone Mill, Blue Bird and Bunny. In addition, Flowers is a leading consolidator in a defensive industry, and as such it offers investors a combination of revenue safety and growing profitability -- attractive qualities in tough economic times.

Founded in 1919 by the Flowers brothers in Thomasville, Georgia, the company went public in 1968 and was listed on the NYSE in 1982. The current entity came into being in 2001 when Flowers Industries sold its Keebler investment to Kellogg (K) and spun the remaining divisions into a new company.

The company has strong cash flow, a nice dividend and an active stock buyback program -- Flowers repurchased 1.5 million shares of its own stock in the third quarter for $38 million dollars. Investors should also note some recent insider buying at the $23.00-$24.50 range.
In May,Flowers Foods boosts regular quarterly dividend by 17 percent to 17.5 cents. The company is also rich in real estate holdings. Including its home offices, it owns all but one of the 39 production facilities it operates throughout the US.

The stock’s recent correction allows new buyers the opportunity to take a position without chasing the shares. In addition, the company’s gross profit margin should begin to improve as lower input costs and efficiencies of scale start to take hold. The fact that consumers are eating more often at home bodes well for the company’s bread sales. Analysts are forecasting 12% earnings growth in 2010, which probably is too conservative, as a 15-16% rate of improvement is more like it. Its risk reward ratio is a favorable 2:1-translation: a buyer is essentially risking $1 to make $2 (the stock’s upside potential is about $6 while its downside risk nears $3 at this juncture) and that type of opportunity does not show up too often.

Disclosure I am long FLO in my consumer goods folio.

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