(281)-719-8904 KenFaulkenberry@AAAMP.com

Sanderson Farms (SAFM) Stock Analysis

Dividend Producers / Growers, Dividend Stock Analysis

Sanderson Farms Chicken

Sanderson Farms Dividend

(updated 5/26/2017)

The Sanderson Farms dividend has been paid continuously since 1988. Although it doesn’t have a policy of increasing its dividend annually; it is included in the Dividend Growers / Producers List because of its long term consistency, conservative management,
and pristine balance sheet.

Price: $119.96
Current Dividend: $0.96

Dividend Yield: 0.8%
Cash Dividend Payout Ratio: 61%

Market Capitalization: 2.7 B
Enterprise Value: 2.4 B

Special Dividend: $1.00 (ex-dividend 10/05/16)
Special Dividend Paid: $0.50 (10/13/15)

Description

Sector: Consumer Defensive
Industry: Packaged Foods

Sanderson Farms (SAFM) is the 3rd largest poultry producer in the United States. With over 11,000 employees the company has relied on organic growth and is the only poultry company to build new plants in the last 15 years.

The company has 11 processing plants, nine hatcheries, eight feed mills, one prepared food division, and 800+ independent contracted growers. With these resources they distribute poultry products to grocers, distributors, restaurants, and food service companies all across the United States and 40 other countries.

In order to meet the growing demand for their products in 2015 they completed a 140 million dollar complex in Palestine, Texas. The new modern facility includes a feed mill, hatchery, and poultry processing plant.

SWOT Analysis

Strengths

Sanderson Farms is a conservatively run family business. Joe Sanderson has been the CEO and/or Chairman of the Board of Directors since 1989. The company has paid off all its long term debt and maintains a high level of liquidity.

Weaknesses

The poultry business is cyclical and competitive. This requires management to be cognizant, nimble, and prepared for supply cycles that greatly affect profitability.

Opportunities

The trend in the U.S. is toward more healthy and fresh food. SAFM is a leader in producing affordable natural lean protein.

Threats

The bird flu can cause harm to whole flocks. Great care must be taken in providing a healthy environment. All of Sanderson Farms products are homegrown and 100% natural.

           Dividend Analyzer Checklist

                                (updated January 2017)

Dividend Safety Score (30/33 points)

Dividend Per Share (ttm): $0.88
Dividend Payout Ratio (ttm): 22%
Dividend Per Share (10 Year Growth): 7.7%
Cash From Operations (CFO) Per Share (ttm): $11.32
CFO Dividend Coverage (CFO / DPS): 12.9 (6/6 points)
Free Cash Flow (FCF) Per Share (ttm): $4.83
FCF Dividend Coverage (FCF / DPS): 5.5 (6/6 points)
Net Financial Debt: $-243 M
Total Assets: $1385 M
Net Financial Debt / Total Assets: -18% (12/12 points)
Net Financial Debt to EBITDA (ttm): 2%
Total Liabilities to Assets Ratio (Qtr.): 18%
Piotroski Score (1-9) (TTM): 6 (6/9 points)

Profitability & Growth Score (27/33 points)

Revenue (10 Year Growth) *CAGR > 4.14%: 10.3% (4/4 points)
EPS Basic Cont. Operations (10 Year Growth) CAGR > 4.14%: 10.4% (4/4 points)
Cash From Operations (10 Year Growth) CAGR > 4.14%: 11.9% (6/6 points)
Operating Earnings Yield (ttm): 14.1% (7/7 points)
Net Income (ttm): $140 M
Gross Profit (ttm): $377 M
Total Assets: $1385 M
Gross Profitability Ratio = GP / Total Assets: 27% (6/12 points)
Cash Return On Invested Capital (CROIC)(tttm): 10%
Return on Invested Capital (ROIC): 13%
Return on Invested Capital (ROIC) (5 Year Median): 15%
Return on Invested Capital (ROIC) (10 Year Median): 13%

Valuation Score (26/34 points)

Free Cash Flow Yield (ttm): 4.4% (5/9 points)
EV to EBIT (ttm): 6.4 (9/9 points)
EV to EBITDA (ttm): 5.0 (8/9 points)
PE10: 23.6 (4/7 points)
Price to Sales Ratio (ttm): 0.7
Price to Book Value (ttm): 1.6
Price to Earnings Ratio (P/E) (ttm): 13.0

TOTAL POINTS – (83/100) (50 is an average score)

*Compound Annual Growth Rate (CAGR)
**A Compound Annual Growth Rate of 4.14% = a 50% gain over 10 years.

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Conclusion

(updated January 2017)

Sanderson Farms is ranked #2 (out of 246) overall and #1 (out of 34) in the Consumer Defensive sector by the Dividend Analyzer.

This may be one of the best values in the stock market. The below average dividend is offset by a pristine balance sheet, an outstanding long term profitability and growth record, sound management, and a favorable valuation.

At the current price, it is apparent that investors do not appreciate the company’s successful long term strategies of being a low cost producer and increasing volume through organic growth.

Sanderson Farms Chicken

Portfolio Position Disclosures:
DVB Foundation Portfolio: None
DVB Dividend Growth: None
DVB High Income: None
Arbor Asset Allocation Model Portfolio (AAAMP): Long

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Disclaimer: While Arbor Investment Planner has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability, or completeness of third-party information presented herein. The sole purpose of this analysis is information. Nothing presented herein is, or is intended to constitute investment advice. Consult your financial advisor before making investment decisions.
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