Novice Investing - Fresh Del Monte Produce

Date: Sunday 20th 2008f July 2008 12:36:48 PM

Del Monte, anyone? 12/03/2004

By: Hari Wibowo

Industry background

Fresh Del Monte Produce Inc. (FDP) is the leading producer of high quality fresh and packaged produce. Some of the product includes banana, pineapple, apple, tomatoes and other fruits. This industry should see a nice growth in the future as the general population in the United States and other developed countries favor a healthier lifestyle. A conservative estimate for this industry is a 5 to 10% annual growth. Therefore, I do believe that FDP will grow at least 5-10% in revenue.

Quarterly Current ratio that is greater than one and is stable or rising.

FDP	Sept 04	Jun 04	Mar 04	Dec 03
Current Ratio	1.66	1.65	1.47	1.39

Quarterly current ratio is improving steadily for FDP over the last four quarters. The company have ample liquidity for at least a year and they are solidifying their balance sheet quarter over quarter . Prodding out the balance sheet, as of Sep 04, FDP had a $12.2 M of long term debt compared to the cash balance of $81.1 M. FDP has a solid cash balance and it has no problem paying off its long term debt immediately if it desires. The risk of bankruptcy here is minimal.

Source: http://www.sec.gov

Fair value of the stock is 3% above current free risk interest rate (10 yr bond)

As of 12/03 2004, 10 yr bond yields 4.24%. I assume interest rate to rise slightly to 5% within a year. The stock needs to yield 8% to give it a fair value. P/E value for FDP is therefore12.5. EPS for FDP for fiscal year '06 is predicted to be $3.33. The underlying trend of the produce industry is favorable. I believe earning for the year after will be even higher. For more details about EPS calculation, please go here .

With a fair P/E value of 12.5, the real price for FDP is therefore $ 41.6/share. Meanwhile, Cash per share for FDP is $1.41/share and Long Term Debt per share = $0.21/share.

Real price = stock price - (cash+ short-term investment) + long-term debt.

Stock price = $41.6 + $1.41 - $0.21 = $42.8/share.

50% potential stock price appreciation within a year.

Current price for FDP is $28/share. With a fair value of $42.8/share, FDP can therefore be bought with 52% potential price appreciation.

Conclusion

I believe FDP represents a good value for investment with 52% potential price appreciation. I will make the purchase in the amount of $2,000 on Monday December 6th 2004 for our sample portfolio.

Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Fresh Del Monte Products Inc.(FDP) or other securities.

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