Diversified micro-cap Andersons
Andersons has its roots in agriculture. Its agriculture group, which consists of grain elevators and plant nutrient (fertilizer) distribution, accounts for 71.3% of total sales last quarter (and the same for the last reported fiscal year). Group sales, up 23% from the year-ago quarter, were strong because volume was up 31%. Grain prices were down 1%, though, mainly because last year's record corn crop was being followed by what was expected to be the second-largest crop on record.
Andersons has been actively building its rail business. The company doubled the size of this operation in 2004 by acquiring 6,700 rail cars and 48 locomotives. You'd expect strong results here, since rail giants like Union Pacific
Investors are excited by the company's apparent attempts to talk down 2005 results. 2004 was a record year, and the company expected a return closer to that of the last three to five years. Throughout last year, the company stuck with a $2.20-to-$2.50-a-share earnings target, down from the $2.55 earned last year. Then, last week, the company surprised everyone -- and probably itself -- when it said 2005's earnings would exceed $3 a share.
Based on those $3 earnings, Andersons' stock is priced at 15.8 times forward earnings. The one analyst that follows the company is expecting the company to grow earnings by 15% a year for the next five years. Based on the company's prospects, the stock is not richly priced.
There are reasons for optimism. Grain prices are low, but international demand is picking up. This may bode well for 2006, but another large crop could hold down earnings from this sector. The company is also dipping its foot in the ethanol business, building two facilities today that will be sited next to its existing grain elevators. The first will open in September 2006.
Andersons' retail operation is a notable concern. Its six Ohio stores, which sell everything from home remodeling items to bread and wine, have been struggling. In the age of big-box retailers like Motley Fool Inside Value pick Home Depot
But at the bottom line, Andersons is a micro-cap conglomerate with big exposure to volatile commodity prices. The company's stock set a new 52-week high last Friday with its excellent earnings guidance. At current prices, and given the relative uncertainty around commodity prices and its retail operation, the stock looks to be what I'd call fully valued.