Article Side

Online Article Directory!

Hello Guest! Login or Register to submit articles!

Rising Star Buy Chiquita Brands

By Prince Damin Subscribe to RSS | November 28th 2011 | Views:

I'm not going to dip bananas in chocolate and call them dessert. The banana business hasn't exactly been sweet over the past half-dozen years. Higher European Union banana tariffs have dented profitability, severe natural disasters have wiped out entire banana farms, and fuel prices a key cost in transporting bananas have gone through the roof.

Chiquita's situation five years ago was especially ugly. On top of the industry headwinds, in 2006, the company was looking at net debt of nearly $1 billion (for a company with a market cap of less than $700 million!), a recently canceled dividend, and negative earnings. My, how things have changed! The banana business is still facing challenges, but Chiquita today is a world away from the Chiquita of 2006. Led by CEO Fernando Aguirre, who took over in 2004, Chiquita's business has transformed from smushy and bruised to firm and ripe for our picking.

Aguirre has tackled every issue head-on. Reacting to industry headwinds, he geographically reworked the company's banana sources. Chiquita grows about one-third of its own bananas and buys the rest, mostly from Latin America. In the past five years, Chiquita has spread out its farms both within that region (mitigating the effects of any one tropical storm) and outside the region (mitigating the effects of the EU tariffs, which apply to bananas grown in Latin America). Even better, those tariffs are now being gradually reduced over the coming years.

Chiquita is also better positioned to withstand rising fuel costs. In 2007, Chiquita sold its fleet of refrigerated cargo ships and leased them back. In addition to receiving some cash to pay down debt and extending maturities on its loans, the transaction freed Chiquita of the burden of dealing with ship ownership, thereby allowing management to focus on reworking the banana business.

Ripening up the business:- Besides dealing with industry headwinds, Aguirre has retooled the core Chiquita business. In 2005, bananas accounted for 98% of operating profit; in 2009, that figure was down to 72%. But banana sales haven't declined; Chiquita added salads and healthy snacks to its repertoire. Under the Fresh Express brand, Chiquita commands a dominant 38% of the U.S. pre-packaged salad market, 16 percentage points more than the second-place brand from Dole (NYSE: DOLE).

Chiquita's fresh snacks include prepackaged fruit, such as Chiquita Apple Bites and Chiquita Pineapple Bites, and the most popular fruit smoothie drink in Europe, Just Fruit in a Bottle, for which Chiquita has partnered with Danone to expand distribution. Chiquita has become a healthy snack innovator; in fact, Aguirre has a standing goal of generating 5% of revenue from products launched in the previous three years.

Chiquita's balance sheet is unrecognizable compared with that of five years ago. In 2006, net debt stood at $964 million even before taking into account operating leases on its cargo ships; in the latest quarter, it was a mere $454 million -- a whopping 53% lower in less than four years. Chiquita continues to devote cash flow to paying down its debt, and lower interest payments will continue to make the business more profitable.

Chiquita's valuation is all about margins. Banana supply and therefore, prices is volatile, but generally, operating margins have run about 8%, and I see no reason for any permanent decline, especially with the EU tariffs slowly evaporating. Margins on salads and healthy snacks, on the other hand, have been climbing they've run 12.5% for the year to date, finally surpassing those on bananas.

For my base case, I assume a conservative 7% margin on bananas and 10% on salads, giving an intrinsic value of about $15.50. Even if banana and salad margins fall to 6% and 7%, respectively, the value holds around $11.50, only about 15% below today's price. On the other hand and here is where it gets interesting if Chiquita can keep salad margins around 12% and hold banana margins at 2009 levels of 8.2%, we're staring at a $25 stock, almost a double from today's price.

A lovely bunch of oh, that's coconuts:- Chiquita is a small, niche business led by an able CEO with a plan. I'll be starting with a roughly 2% position and recommend you do the same. If we continue to see improvement debt levels coming down, margins increasing and stabilizing you can expect me to add to our position. In the meantime, share your thoughts, questions, and concerns on our discussion boards.

Prince Damin - About Author:
Get recent talks and informations about Finance and investment news. Visit for more information and latest updates about personal finance news .

Share on Facebook Tweet It Stumbleupon this post This post is delicious !

Article Source:

Related Investing Articles Subscribe to RSS

Finding Big Profits with live stock market
Published by Jemes Smith on June 12th 2012 | Investing
There are many online trading websites on the internet and alternative the online trading service th...
How to make recommendations in stock market
Published by Market Review on March 29th 2012 | Investing
The stock market is perhaps one of the few techniques on the world where investors can make money in...
What digital options are in stock market business?
Published by Alvin Cook on February 20th 2012 | Investing
Latest stock market strategy which provides huge gain in terms of large investors...
Best Execution in our Home market
Published by John Pattison on December 29th 2011 | Investing
Best execution is definitely a teaching or provide by- agencies some thing to their benefit together...
Choose the accurate trade options to conquer the market tribulations
Published by Alvin Cook on April 7th 2012 | Investing
We all are familiar with trade options which are highly important sort of trading strategy to gain p...
Gaining returns from the market and India news
Published by Reutersindia on January 6th 2012 | Investing
Fortune does not favor the brave only; it also favors the cautious, the wise, and the confident. Thi...
Student loans in default, a rising concern for the financial market
Published by Michelsmith on January 2nd 2012 | Finance
Student loans in default state is growing day by day. The governments are really looking into these ...
Boost in job market due to small bank hiring more
Published by John Harry on February 24th 2012 | Finance
The condition of the job market of the country as far as its financial sector is concerned. The rise...
Preferred stock- a glance
Published by Isol on August 13th 2012 | Finance
Preferred stock typically is issued for innovative investors or other institutional investors. Its n...
Why companies with actual wealth got success with GXG market listings and exalted evaluation of financing and going common.
Published by Gxgexchange on June 21st 2012 | Investing
By the mean of this article we are going to put some light on trading scenarios. Like there are many...
Types of mutual funds available in Indian investment market
Published by Chris Luke on May 18th 2012 | Investing
Mutual funds in India are a fast expanding sector offering a wide variety of investment options to s...
Which Sensation Should Dodd-Frank Derivatives regulation have on the current market?
Published by Aldred Bailey on June 29th 2012 | Finance
Some derivates information mill this of the unfamiliar highlight. People around the world of the Dis...
How Stock Market Browser can give you an edge in stock market
Published by William Jackson on June 26th 2012 | Investing
Stock Market Browser is a beneficial and perfect tool that enables you to have an instant snapshot o...
Hidden opportunities in preferred stock
Published by Isol on August 13th 2012 | Finance

Preferred stock typically is issued for innovative investors or other institutional investors. I...
Finest Opportunity to Niche market Net Banking when 2012
Published by Leonardo Murdock on February 21st 2012 | Finance
The right the possibility to area of interest net banking being recognized one of the population tha...
Preferred stock- a glance
Published by Isol on August 13th 2012 | Finance
Preferred stock typically is issued for innovative investors or other institutional investors. Its n...
MiFiD's Have an effect on Usa Foreign exchange market
Published by Shaun Lehman on January 27th 2012 | Finance
When said old, the specific Directive necessitates Customer Shows to get ready ones insurances gover...
Reliable tips for traders to make riches in the stock market
Published by Cody on June 7th 2012 | Finance
This is one of the most important things that you need to keep in mind before you start trading on s...
Stock market investment and cricket scores live
Published by Reutersindia on January 6th 2012 | Investing
Investing in the stock market may seem an easy affair but when you actually start putting in money, ...