Earnings momentum for
Farmer Bros. Co.
) has soared over the past 60 days since this coffee company
announced a solid fiscal first-quarter performance last month.
Furthermore, the Zacks #1 Rank (Strong Buy) touched its 52-week
high of $14.22 on December 17.
On November 5, Farmer Bros reported first-quarter 2013 earnings of
19 cents per share, significantly surpassing the Zacks Consensus
Estimate of breakeven. Earnings were also substantially improved
upon the prior-year loss of 50 cents as gross margin expansion and
solid expense control made up for the lukewarm revenues. The top
line declined 2% to $119.2 million.
Gross margins improved 400 basis points to 37% during the quarter
due to lower coffee costs. Adjusted EBITDA improved 157% year over
year to $12.1 million, due to gross margin expansion and cost
control. Going forward, the company believes that lower coffee
costs will further improve the company's financials.
Earnings Estimates Jumping
Over the last 60 days, the Zacks Consensus Estimate for 2013 has
soared 250% to 42 cents, as 2 of 3 estimates were revised higher.
This reflects a year-over-year increase of 122.2%. The Zacks
Consensus Estimate for fiscal 2014 has risen to a profit of 47
cents per share from a loss of 2 cents over the same time frame,
reflecting a year-over-year increase of 11.9%.
Farmer Bros looks expensive at current levels. It currently trades
at a forward price-to-earnings (P/E) of 33.45x, representing a
premium of 65.2% to the peer group average of 20.25x. On a
price-to-book basis too, the stock is trading at a premium to the
peer group. However, the shares trade at a discount of 4.2% to the
peer group on a price-to-sales basis. The premium valuation looks
justified given its strong fundamentals.
Shares of Farmer Bros have been rising consistently since the
announcement of the first quarter results. Moreover, the stock is
currently trading above its 50- and 200-day moving averages, which
stand at $10.50 and $9.20, respectively. In fact, the stock has
been trading above its 50-day moving average since mid-November
2012 and above its 200-day moving average since mid-September 2012.
Volume is averaging roughly 91K daily. The stock is expected to
deliver an earnings growth of 20% in the long term.
Based in Delaware, Farmer Bros manufactures coffee, tea and other
culinary products and distributes them to restaurants, hotels,
casinos, hospitals and other food service providers. The market cap
of the company is $215.02 million.
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