Chiquita May Still Be Undervalued

Banana kingpin Chiquita Brands (NYSE: CQB  ) disappointed Wall Street last week with lower-than-expected earnings based on an ongoing issue with raw product prices and some supply-side issues. The core banana business actually improved, indicating a possible turnaround in an area that has plagued the company for some time. Investors who have been in the stock over the past two years have seen their holdings gyrate from less than $5 per share to nearly $14. Sitting under $10 per share today, the stock still offers a compelling valuation if operations are on the mend. With recent earnings in mind, let's take a closer look at Chiquita.

Recap
Though revenue increased slightly from $716 million in 2012's third quarter to $723 million in the recently ended one, Chiquita posted a steeper-than-expected loss of $18 million -- $0.38 per share. Analysts were looking for a little more than $740 million in revenue and a loss of $0.23 per share, giving Chiquita investors cause for brief panic.

When looking ahead, management was not too optimistic regarding near-term conditions. Chiquita leadership sees an excess supply issue in Europe and ongoing trouble with plant consolidation here in the U.S.

While current financials sagged and short-term forecasts were none too thrilling, Chiquita is still a compelling business. For one thing, it has a fantastic brand presence. Alongside competitor Dole, Chiquita has one of the most identifiable produce stickers one can find and a formidable packaged-salad business (though growth in the recent quarter for this segment was virtually flat). In addition to its brand power, the company has Ed Lonergan at the helm.

Slimming down and ramping up
When Lonergan, a seasoned turnaround specialist, was installed as CEO of Chiquita, management's vision improved sharply. The company ditched a few products that it had little brand recognition (read: profits) in and focused on high-growth areas of the produce and vegetable market. Chiquita's white-label segment is a great source of growth for the company and one that satisfies its buyers who are looking for higher-margin, lower-priced items to stock the shelves.

The turnaround plan is still one to pay attention to and rally behind. It has lowered and will continue to lower operating costs. Chiquita's Fresh Express salad brand is leading growth in the value-added category -- the first time in several years. Volumes for the segment were up 7.5% in the quarter.

The two aforementioned forward-looking issues look to be of a one- to two-quarter nature. The European excess supply will likely keep pressure on fourth-quarter results, but the company continues to increase volume and pricing in the region -- an appealing long-term element. As for plant consolidation costs, management noted that the first quarter of 2014 should see the issue resolved.

At under nine times earnings, Chiquita leaves some headroom for multiple expansion once the market is more convinced its turnaround efforts are succeeding. Competitor Dole is no longer a publicly traded company, as David Murdock completed his takeover in the early days of this month. Murdock's $1.2 billion buyout valued the company at nearly 20 times forward-earnings estimates.

Less than half the price on an EPS level, Chiquita (again) offers investors compelling valuation with great leadership and strong brand ID.

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