Sticking With Sanderson Farms

Sanderson Farms (SAFM - commentary - Cramer's Take) to earn $4.50-$4.60 per share, management announced last night, down from its previously announced estimate of $4.85-$5.25. The stock is down about 2% today.

I first wrote a bullish column about this company last January, at lower prices. I still like the chicken processor today.

If we assume $4.50 a share, the chicken processor's implied return on equity is about 30%. That's an attractive return for an 8 times price-to-earnings ratio.

Further, Sanderson has top-line growth, high insider ownership and no dubious assets on the balance sheet. Plenty of liquidity, as well, with $84 million of cash vs. just $11 million of debt.

The knock against this company is that it is a price-taker in terms of revenue and feed costs. The critics may have a point. On the other hand, Sanderson has lost money just twice during 1986-2004, according to Reuters. Both losses were small: $5.3 million in 2000 and $2.4 million in 1996.

Complete financials will be announced via conference call on Dec. 7.

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At the time of publication, Heiserman was long Sanderson Farms, although positions may change at any time.

Hewitt Heiserman conceived the Earnings Power Chart, Earnings Power Box and Earnings Power Staircase. A financial analyst for the past 15 years, Heiserman is a member of the Boston Security Analyst Society and the Association for Investment Management and Research. He also authored It's Earnings That Count, a book published by McGraw-Hill. For additional information, please visit www.earningspower.com. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Heiserman appreciates your feedback and invites you to send it to [e-mail].

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