Small Cap Strategist is published by Crystal Equity Research an independent research resource on small capitalization stocks. Follow along as we discuss the most recent trends in the small-cap sector, investigate interesting companies and pan a few not-so-promising stocks.
The Andersons (ANDE: Nasdaq) is not one of the
first companies that comes to mind as an alternative energy company.However, ANDE has been in the Ethanol
Group in our Beach Boys Index for some time.Ethanol is one of six revenue sources for The
Andersons, contributing $743 million to the top line in the year 2012. That represents about 14% of The Anderson’s
total revenue base.The company produces
ethanol in four plants located in the Midwest with a production capacity of 330
million gallons per year.
The Andersons Clymers Ethanol Plant, Logansport, Indiana
the ethanol segment is not consistently profitable.In 2012, the company disclosed a $3.7 million
operating loss on the $743 million in ethanol sales.This follows a small profit of $23.3 million
in 2011.The ethanol operations were hit
by narrowing profit margins, but the real problem in 2012 were substantial
losses in unconsolidated operations, in which The Andersons have invested but
do not have control.
of the company’s other five segments are profitable.Consequently, The Andersons has delivered profits
in every one of the last ten years.In
the most recently reported twelve months The Andersons reported a net profit of
$73.6 million on $5.7 billion in total sales.Cash generated by operations totaled $402.9 million, representing a
sales-to-cash conversion rate of 7.1%.
the consistency in earnings and cash flow has not impressed investors.The stock trades at 17.6 times trailing
earnings, while other food commodities companies trade near 22.0 time
earnings.ANDE trades at lower multiples
of sales, cash flow and book value as well.
energy companies have been slow to achieve profitability.They frequently operate at a loss for so long
it is necessary to raise capital, diluting the equity positions of early
investors.It makes sense to take an
alternative strategy-invest in established companies that have
integrated alternative energy projects into conventional operations.
review of historic trading patterns in ANDE suggests the stock has developed
enough momentum to reach a stock price near $86.00.This target price represents 25% upside from
the current price level.It is also a
multiple of 15.7 times the 2014 consensus estimate-well
below the company’s peer group.A forward
dividend yield of 0.9% is better than a poke in eye with a sharp stick.
a position in ANDE gives investors consistent financial performance at a decent
price from a company that has its foot in the door of alternative energy.
Neither the author
of the Small
Cap Strategist web log, Crystal Equity
Research nor its affiliates have a beneficial interest in the companies