Alico: Compelling Buy Despite Citrus Greening Risk

John Zhang is a full-time investor that frequently shares his analysis on Seeking Alpha. I personally follow John because his recommendations are supported by fundamentals which we love here at finbox! Today he shared his views on Alico Inc. (ALCO) in an article titled "Alico: Compelling Buy Despite Citrus Greening Risk." I am now re-sharing it with finbox members because the fundamentals do appear compelling!

While ALCO is a small citrus producer (~$250mm market cap) an no sell-side analyst coverage, the stock has an interesting story...


Article Highlights

  • Alico became the largest domestic producer of citrus fruits with its three acquisitions in late 2014.
  • The company is priced for absolute pessimism at 6.4x P/FCF.
  • Despite delivering robust results after adjusting for one-time costs related to the acquisition, shares sold off aggressively, thus presenting a buying opportunity.
  • Although the spread of citrus greening disease is a major risk, new methods have emerged to better contain its spread and funding for anti-citrus greening research has increased.
  • Strong free cash flows, heavy insider buying, decreasing G&A costs and fresh indications of a strong harvest make Alico a compelling buy.

When news broke on the three acquisitions, Alico's share price jumped by 52% and hovered at slightly lower levels for 2015, before taking a nosedive around November 2015 that has lasted till now.

ALCO Stock Price Chart

Fundamentals
The chart below compares the trading multiples of Alico, Fresh Del Monte Produce Inc. (FDP) and Limoneira Company (LMNR). Alico's multiples look cheap!

John provides quality fundamental support in his article however I've decided to add my own DCF analysis. The assumptions below provide a fair value price target of ~$40/share.

My WACC support.

Read John's full article here and don't forget to follow him for more deep value stocks just like ALCO.

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