I recently wrote about Bunge's (NYSE: BG) strong start to the year. In the first quarter, the company saw its net income jump threefold, fueled by high demand and an increase in harvests by farmers across the globe.
Now the question is whether Bunge is fundamentally strong enough to carry that performance forward and whether it is a good buy from an investor's point of view.
Income matters
Thanks to increased demand for agribusiness products, Bunge has seen a surge in sales lately. That's good, but how much of its revenues is Bunge able to retain and turn into profits? Net income margin has gone up to 5.3% from 2% in 2006. This is nice.
Return on equity is an important measure for evaluating a company's profitability as it tells us how effectively a firm is using shareholders' money to drive growth. Bunge has outperformed its industry peers on this front. Its ROE stands at 21.2%, whereas ConAgra Foods' (NYSE: CAG) is at 13.3% and Archer-Daniels-Midland's (NYSE: ADM) is at 13.9%. That's another feather in the company's cap.
Cash flow and debt
Bunge's debt-to-equity ratio stands at 35.8%. It looks fairly stable, especially when we compare it with Archer-Daniels-Midland's 85.5% and ConAgra's 69.6%.
The company's interest coverage ratio stands at 5.4, which means it is comfortably placed to pay off its short-term debt. The only worrying sign here is that its free cash flow stands at negative $2.6 billion, because of a change in its inventories and account receivables. However, it looks well-placed to turn to black thanks to some impressive growth initiatives.
For example, the company recently entered into a deal with SEACOR Holdings (NYSE: CKH) to build a river grain export terminal in Illinois. This deal will help improve grain transportation, as the company looks to expand it global horizon.
Value and yield
Bunge's forward P/E of 12.03, makes it cheaper than ConAgra, which looks a tad more expensive at 13.29. At 9.27, Archer-Daniels-Midland looks to be the cheapest of the lot. The enterprise multiple or enterprise value to EBITDA tells us how expensive a stock is. Bunge's multiple stands at 8.46, which makes it relatively more expensive than ConAgra and Archer-Daniels-Midland, whose comparative values stand at 7.26 and 8.3, respectively.
From a dividend standpoint, Bunge's payout ratio isn't as high as its competitors'. It stands at 7.7%, whereas ConAgra's is at a high 56% and Archer-Daniels-Midland's is at 18.5%. But this may not be such a bad thing as it is possibly looking to retain its earnings, at present, to fund future growth.
The Foolish bottom line
Bunge's performance may make it seem like an attractive prospect. The only negative is the negative cash flow. However, Bunge is looking to grow, so these minor problems should get sorted out. All in all, the stock looks like a possible buy for the long run. What say, you Fools? Scroll down to the comments section and chime in.
