Are you interested in a business, which has delivered consistent positive profits in the last 10 years? In addition, it also generated positive and growing trend of operating cash flow in the same period. However, it is valued at single digit forward earnings and EV/EBITDA. The company has postponed its dividend payment since the beginning of 2011, but it recently announced that it would prepay the next four years of dividends (2013 – 2016) on Dec. 28to shareholders on record as of Dec. 17. The company is Seaboard Corporation . So is it a good investment opportunity?
Seaboard is considered to be a diversified international agriculture and transportation business with its pork production and ocean transportation in the US. Outside the US, it is involved in different businesses, such as power generation, sugar production, commodity merchandise, etc. Seaboard derived the majority of its revenue in Latin America and the Caribbean, which accounted for 39% of the total sales. In terms of business segments, Commodity trading and milling segment brought the most of its revenue--nearly $2.69 billion out of $5.75 billion in total sales. However, it was a low margin business; the operating income for the commodity and milling segment was only $43.2 million, giving it a 1.6% margin. The pork segment bought the majority of Seaboard’s operating income, nearly $260 million, whereas the power segment and sugar segment created operating profits of $61 million and $60 million, respectively. The marine segment is the only losing segment, with $3.9 million in losses.
In the past 10 years, Seaboard has consistently delivered increasing revenue, from $1.83 billion in 2002 to nearly $5.75 billion in 2011, marking an annualized compounded growth of 12.13%. In the same period of time, the company has grown its EPS from only $9.38 to $248.70, along with some fluctuations in between. Trailing twelve months, its EPS was $236.70; the return on invested capital was nearly 12%. The company has generated $321 million in operating cash flow and $176 million in free cash flow over the past 12 months.
Seaboard has managed to deliver consistent operating performance with little help from leverage. The balance sheet looks quite strong. As of September 2012, it had $2.26 billion in stockholders’ equity, $432 million in cash, and only about $210 million in interest-bearing debt. Currently, Seaboard is trading at $2,405 per share, with a total market capitalization of $2.88 billion. Because of its net cash position, its enterprise value is lower than its market cap, of $2.65 billion.
The interesting thing about Seaboard is that although it is a publicly traded company, it is run like a private company. In the past 10 years, it has had the same amount of shares outstanding. The stock hasn’t been split, even though the share price is psychologically high at more than $2,400. When I looked into Yahoo! Finance, there is no analyst following the company. There were only two upgrades, which were issued by Jefferies & Co and Robert W. Baird, dated back 2003 and 2007. In addition, it is a family controlled business. Steven Bresky, president, CEP, and chairman of the board holds a 74.6% stake in the company.
It seems to be the stock to hold for the long-term. Indeed, in the past 10 years, Seaboard has outperformed its peers Bunge Limited and Smithfield Foods .
Seaboard has nearly become a 10 bagger in the past 10 years, whereas Bunge returned 230% for shareholders. Smithfield is worst, with only a 26% gain for a decade. Furthermore, the fantastic long-term market return of Seaboard was created with the least amount of leverage. Seaboard’s debt to equity ratio is only 0.1x, whereas Smithfield and Bunge are similar to each other, at 0.4x. Valuation-wise, Bunge is the most expensive with nearly 11.7x EV/EBITDA. Smithfield is the cheapest with 5.61x EV/EBITDA. Seaboard is only a bit more expensive than Smithfield, with 6.6x EV/EBITDA.
Foolish Bottom Line
Seaboard seems to be a great pick for the long term. With the consistent operating performance, special upcoming dividend, heavy insider ownership and low leverage, Seaboard is quite suitable to be in the long-term portfolios of patient investors.
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