1 Exceptional Food Company for Every Portfolio

As long-term investors, we love stable and growing companies trading at fairly attractive valuations. Flowers Foods (NYSE: FLO  ) may pass all of our stringent investment qualifications. The company recently held an analyst event in which it gave good guidance; investors reacted by sending shares up 3.4% on March 24.

Analyst event
Flowers gave long-term guidance of 5%-10% sales growth, earnings before interest, taxes, depreciation, and amortization margins of 11%-13%, and earnings-per-share growth in the double digits. These expectations are on par with the company's performance over the last five years; Flowers has grown annual sales 7.6%, EPS 11.6%, and had EBITDA margins 11.7%.

Flowers' growth over the past five years and future goals compare very favorably to much larger packaged-food companies General Mills (NYSE: GIS  ) and Kellogg (NYSE: K  ) . General Mills has grown sales and earnings per share by 3.9% and 8%, respectively, over the last five years. Over the same time frame, Kellogg has grown sales and earnings per share by 3.3% and 9.4%, respectively, each year. 

Flowers' strengths
Flowers Foods has a strong competitive advantage surrounding its brands and size. The company is relatively consolidated in product scope compared to General Mills and Kellogg, which produce almost anything. Flowers sticks to baked goods such as bread and snack cakes. In the bread category, it owns several major brands such as Merita, Wonder, Sunbeam, and U.S. leading brand Nature's Own.

Competition eats away at many packaged-food companies' margins, and Flowers Foods is certainly not exempt. Flowers faces many competitors with strong branding of their own in the bread category, as well as store brands that typically cost much less. This risk could be a headwind for Flowers, but I believe the size and quality of brands in its stable will help the company to weather most storms.

Flowers has also been on the acquisition trail lately. In 2013 the company bought the rights to several bread brands and assets from the financially troubled Hostess, as well as the Sara Lee bread brand from BBU.

Looking ahead
Over the last decade, Flowers Foods has grown from selling in regions covering 38% of the U.S. population to 79% in 2013; it grew its market cap tenfold in the same period. The company has primarily used acquisitions as a means to enter new geographic regions, so clearly the same amount of regional growth is not possible over the next 10 years. However there is still some ground to cover. And as Flowers improves efficiencies and makes new product acquisitions, you can still expect the company to experience sizable growth.

I believe that the 5%-10% sales growth the company is aiming for, along with increased efficiencies as acquisition assets are integrated, should be more than enough to push this stock much higher for years to come. Flowers is currently priced at 19.6 times earnings, which is slightly higher than General Mills' 18.7 times earnings and quite a bit more than Kellogg's 12.4 times earnings multiple.

Foolish investor's bottom line
Flowers Foods may be more expensive relative to earnings than its larger counterparts in the packaged-food industry, but it is poised for higher growth as well.

The company has a strong history over the last 10 years of growing its business and enriching shareholders in the process. Management is expecting a 3%-5% increase in sales per year ahead due to organic growth and another 2%-5% growth from acquisitions. Strong estimates for top-line growth combined with the defensive nature of the bread category should help keep us investors happy for years to come.

Though the company may be somewhat pricey now, it is an excellent company to keep your eye on. If you can get a piece of this company now and more later for a price that is cheap relative to earnings, you won't be disappointed.

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