Aren't food stocks supposed to be slow growth vehicles? Apparently not if you're talking about retail and food-service bakery Flowers Foods
Flowers' current incarnation was born in March 2001, when Kellogg
Yesterday the company announced that first-quarter sales increased 10.5%. Net income rose an impressive 46% (beating analyst estimates by $0.03 a share) when compared with last year's comparable quarter, and the company upped its guidance for the year.
Flowers' expected earnings growth, 11% per year over the next five years, should interest investors; it handily beats the food industry's expected average growth of 8.6%. The company's $77 million of annual trailing free cash flow shows there should be plenty of cash for acquisitions, share repurchases, and dividend increases. The stock yields a tasty 1.56% today.
The company has also been buying its own shares. In 2002, the board authorized a repurchase of up to 7.5 million shares (adjusted for a 3-for-2 stock split). At the time, that represented approximately 16.5% of the outstanding shares. Since then, the company has repurchased 4.9 million shares at an average price of $27.45 (over $5 less than the current price). After all the share buying, the company's bank and other debt is a reasonable $86 million.
All of this good news comes at a price. The stock is up roughly 40% over the past 52 weeks and is priced at 25.6 times trailing earnings. That is more than twice the expected 11% earnings growth rate. Yikes. Does that make sense?
One analyst didn't think so and downgraded the stock today to a "hold." Investors have to look at the company's trailing five years' compounded earnings growth rate of 48% and see greater than 11% growth ahead to justify such a price. That might be the case, but this is still a bread and snack-cake company that has to fight for shelf space -- no shortage of competitors here. At today's price, there is too much good news priced into this stock to attract this observer.