Sunday, September 4, 2016

Recent Purchase - FLO



When the market is trading near its all-time high, it’s difficult to find good deals. Companies that are beaten up are normally where they should be. With the string of bad earnings results and the lawsuit from their truck drivers, Flower Foods (FLO) is certainly beaten up. However, I decided to initiate a new position with FLO. I see some potential in terms of dividend growth, FCF and yield. It's relative risk grade is right at 1.7 - which is below my 2.0 threshold.


Details of my Transaction


Action
Security
Price
Quantity
Amount
Buy
FLO
$15.1
99
1495+fees



My Criteria Table


FLO 9/2016
Area
Criteria
CheckList
Comment
Quality Company
Dividend Growth
>5 years
Yes
14 Years
ROE/Op Margin
Stable
Yes
Stable
Long term Avg Growth
Stable
Yes
Stable
FCF over Dividends
FCF>Dividends
Yes
FCF covers Dividends
M* Moat
Wide Moat
No
None
M* & S&P
Credit Rating
> BBB+
No
BBB
Cash to Debt & Interest Coverage, Debt to Equity
Cash Debt >1 or Interest Coverage > 5
Yes
Cash to Debt 0.01
Interest Coverage 10.21
Debt to Equity 89.02
M* & S&P Stars
> 3 Stars for both
Yes
M* Not Rated
S&P CapIQ 3
Payout Ratio
<60%
No
68%
Relative Risk Grade
<2.0
Yes
1.7
Dividend Growth
& Yield
Dividend Yield
>3%
Yes
4.30%
Dividend Growth
>5%
Yes
10.47%
Chowder
>12%
Yes
14.77%
Valuation
Yield/Avg Yield
>1.1
Yes
1.72
Dividend Yield Theory Mid Point
Below Mid Point
Yes
Mid Point 21.99
Low Point 15
P/E
Below Mid Point
Yes
Median 25.48 Current 16.92 Forward 15.33
DDRM
~10%
Yes
Assuming 6% growth; projected return=9.64%
M* Estimate
<M* est
N/A
Not Rated
S&P Estimate
< S&P cap IQ est
Yes
Not provided


Competitors


Looking at the list of competitors from Nasdaq & M*, I see a wide range of competitors.






However, FLO has a strong presence in the Bread niche of the market.




Risks


As I mentioned earler, there are real risks with:
  • Earnings concern in the recent quarters
  • Lawsuits from truck drivers classified as contractors


Valuation

My valuation tool can be found here: https://div4son.blogspot.com/2016/01/d4s-valuation-tool.html


Dividend Yield Theory


After some modification to the yield history (due to splits etc), I ended up with the following high and low yields %.


High
4.30%
Low
2.20%
High Price:
29.09
Mid Price:
21.99
Low Price:
14.88

PE Analysis & Valuation


Using the previous 5 years data, I used 31.50 and 17.68 as the high & lows for the P/Es.


P/E High and Low

High P/E
31.50
Mid P/E
24.59
Low P/E
17.68


High Price
27.72
Mid Price
21.64
Low Price
15.56


P/E 5 Yr High
323.07
P/E 5 Yr Low
17.23


P/E 5 Yr Median
25.48


Current P/E
16.92


2016 P/E Est
15.33

DDRM


I used the ROE, EPS and core growth data from Guru's site.


DDRM

Dividend Rate ($)
0.63
Divided by: share price
14.87
Current yield (%)
4.24
Core Growth Estimate (%)
6.00
Divided by: ROE (%)
15.62
Multiplied by: EPS ($)
0.88
Cost of Growth (%)
0.34
Earnings per Share ($)
0.88
Minus: Dividend
0.63
Minus: Cost of Growth
0.34
Funding Gap ($)
-0.09
Divided by: Share Price ($)
14.87
Share Change (%)
-0.60
Core Growth (%)
6.00
Plus: Share Change (%)
-0.60
Total Dividend Growth (%)
5.40
Plus: Dividend Yield (%)
4.24
Projected Total Return (%)
9.64


Dividend Rate ($)
0.63
Required Return (%)
10.00
Growth (%)
5.40
Price
13.72


Dividend Rate ($)
0.63
Required Return (%)
10.00
Growth (%)
8.00
Price
31.52


Average
22.62


I think the fair value is around $20 - with a +/- 10% variance. With the current price close to 15, I think we have some upside. The price can certainly go down further with the market and all the bad news.


Conclusion


FLO has also been very popular with the DGI blogging community. Due to the risks, my initial position is relatively small. I may add another position if it drops to below 14 - but we’ll see.


What do you think for FLO?

D4s

18 comments:

  1. Nice buy D4s! I just bought a small entry a couple weeks ago myself. Great analysis here. Thanks for sharing your thoughts on FLO!

    ReplyDelete
    Replies
    1. Adam, I remember your purchase a few weeks ago. It's a popular stock with the DGI community for sure.
      Thanks for your comments!
      D4s

      Delete
  2. I've got this one on my list as well. There's a good deal of risk with the contractor lawsuit and the DOL review so I wouldn't go all in here but a tiny bet isn't a bad idea for the less risk averse investor. I might pick some up if it heads a bit further south myself.

    ReplyDelete
    Replies
    1. Time in the Market,
      It is definitely a risk - a calculated bet. But I think I am okay with it. I went to the grocery store yesterday, and the bread isle is stocked by flower products. The real competitor is the store's bread.
      D4s

      Delete
  3. Interesting buy D4S, like you say it's very popular amongst everyone right now. Hopefully it turns out to be a good one!

    Tristan

    ReplyDelete
    Replies
    1. Tristan,
      Thanks for visiting. It's definitely one of my interesting buys. I am buying mostly the beaten up stuff lately. I have another one on my list for this week. If everything works out, you'll see another buy from me.
      D4s

      Delete
  4. Great buy and analysis. I like your criteria chart. I'm a happy shareholder of FLO stocks as well.

    ReplyDelete
    Replies
    1. Investing Hunting,
      I am glad to be fellow shareholder. The criteria chart is useful for me to do a quick checklist of why I want to buy a company. It doesn't have to score perfect - just good enough for me to buy. Appreciate your support!
      D4s

      Delete
  5. I do not own FLO, but after seeing it bought over and over among many of our fellow DGI bloggers I think I should at least consider it. Nice yield that appears sustainable and good value too. I also like the staples sector as well. Thanks for sharing.

    ReplyDelete
    Replies
    1. Keith, It's worth a look. It might not be good for everyone, and it will definitely be a volatile ride for the short-term. Let's see how this one will play. Overall, a tough market tough to buy from.
      D4s

      Delete
  6. I bought some last week didn't want to be left out. Lol either ups or fedex had the same type of lawsuit they did ok

    ReplyDelete
    Replies
    1. Dividends And Hobbies, I am glad to be a fellow shareholder. Thanks for the reminder on Fedex who had a similar problem. If FLO loses, then the industry in general will have an issue with drivers, and then other industries - like Shipping etc.
      D4s

      Delete
  7. looks like we all trust in FLO.Even i bought small amount 2 weeks ago i believe.

    ReplyDelete
    Replies
    1. Let's hope we are not lemmings. There's a risk with FLO for sure. For me, I think it is okay. People need to get their bread.
      D4s

      Delete
  8. Div Son,

    Love the "bread" and butter purchase here! :-)

    MDP

    ReplyDelete
  9. Love the purchase D4S. I might add a bit more soon. Thanks for sharing and glad to be a fellow shareholder bro. Cheers!

    ReplyDelete
  10. Nice buy Div4Son. FLO has been VERY popular among DGI investors lately. Our family also picked up a few shares just under $15. We haven't done much buying lately but couldn't resist the attractive price entry! AFFJ

    ReplyDelete