01 March 2006

Down, and I Mean Down on the Farm

I figuratively returned to the farm yesterday to listen to Sanderson Farms' conference call. I previously took a brief look at SAFM a few months back when I declared this stock the winner among NASDAQ losers in a silly battle royale. I say silly, because SAFM has continued to lose, going from $31.70 back in November down to $23.32 yesterday.

SAFM is a poultry producer based in Mississippi. (I listened to chicken-talk, delivered in rich, thick Gulf accents, just for you.) There is enough grist in that sentence to tell you exactly why this stock has dropped more that 25% in just a few months. Fears of AI (avian influenza, not artificial intelligence) and the destructive effects of Katrina took SAFM's stock, and feathered it, deboned it, and turned it into a roaster.

On the call, I heard that earnings per share for 1Q06 would be a loss of $0.43 versus a profit of $0.50 for 1Q05. I heard phrases like "difficult current market conditions" and "a very difficult market environment."

Then there was some good news: SAFM is investing in a Waco, Texas plant that will process 1.25M birds per week by 2008. Growth is good news, indeed. (As a blogger, I should add, "Heh.") And Sanderson reported no lingering Katrina effects.

And there were some forward-looking statements and hopeful rationalizations: People will become less emotional, and get used to hearing reports about wild birds with AI, just like they did with reports about additional heads of cattle with BSE. And the growth of casual dining restaurants will drive demand for chicken breasts.

SAFM is a financially secure company riding out some tough times in the poultry market. I think chicken is on sale for 39-cents a pound.

Let's check out the circulars from supermarket to make sure:

SAFM versus its much larger competition (Hormel (HRL), Smithfield (SFD), and Tyson (TSN)):
Net Profit - 7.0%, 4.7%, 2.4%, 1.3%
Forward P/E - 11.1, 17.6, 12.0, 22.2
ROE/ROA - 15.6%/12.1%, 16.6%/9.3%, 15.0%/5.0%, 7.5%/3.3%

I'm not sure how up-to-date the above SmartMoney.com numbers are, but they suggest, if not confirm, that SAFM is a solid poultry player. It's all cock.

And I should correct myself. If you look very carefully at the lower right corner of the Schnucks' circular I found, chicken breasts are on sale (in St. Louis, MO) for 99-cents a pound, so my 39-cents crack was a bit of an exaggeration.

Missing the Quick Dip in the Online Education Stocks?

Apollo (APOL) dropped 15.5% yesterday, to $49.38. The operator of the for-profit University of Phoenix missed earnings and revenue estimates. Analysts' consensus called for earnings of 54 cents per share on $586M of revenue. APOL forecasted 43 to 44 cents per share on $570M of revenue.

A competitor in the online and distance education field, Strayer (STRA) had a sympathy drop of 6.5% to $96.33.

SmartMoney gave me some quick numbers to consider, STRA vs. APOL:
5-yr Earnings Growth - 19.17% vs. 30.97%
Net Profit Margin - 21.80% vs. 19.90%
PEG - 1.46 vs. 0.87
ROE - 31.90% vs. 71.10%
ROA - 21.60% vs. 37.20%

These are some riveting numbers. They are downright gaudy.

I thought about buying on the dip, but would sleep on it. A prudent, not piggish, move.

Then I saw this piece early this morning in the Times with an opening sentence that should help these stocks rebound quicker than even I expected:

It took just a few paragraphs in a budget bill for Congress to open a new frontier in education: Colleges will no longer be required to deliver at least half their courses on a campus instead of online to qualify for federal student aid.

I think I missed the opportunity to take advantage of a real bargain. I'm looking forward to the opening of the market today to see just how much APOL and STRA rebound on this significant piece of news.