Thursday, June 28, 2012

Saputo Inc 2

On my comment blog, “Is Quebec losing Head Offices?” See comments blog.

I own this stock Saputo Inc. (TSX-SAP). ). I first bought this stock in 2006 and then some more, twice in 2007. To the end of May 2012, I have a return of 17.5%, with 2.24% coming from dividends and 15.26% coming from capital gain. Some 12.8% of my return is from dividends.

Over the past year the insider trading report shows 2.9M of Insider selling and net insider selling at $2.2M. The company gives out stock options, so this is not surprising. Not only do insiders have stock options, but they now have Performance Units Shares for non-directors and Participation Units for Directors.

The Saputo family owns just over 35% of the outstanding shares (Emanuele Saputo). The CFO, most officers and most directors have more options than shares. Still there are several people who own shares worth more than $1M. Saputo has been busy buying back shares on the open market. However, they seem to be only buying enough to basically cover stock options granted. The shares outstanding over the past 5 and 10 years haven’t changed.

There are 172 institutions that own 16.26% of the shares of this company. Over the last 3 months they have decreased their investment by 7%. However, over the past 10 days, they have increased their investment by 1%.

The 5 year low, median and high Price/Earnings ratios are 14.44, 18.01and 21.59. The current P/E ratio of 15.47 on a Stock price of $41.46 is between the low and median values and therefore shows a relatively reasonable stock price.

I get a Graham price of $25.26. The 10 year low, median and high Price/Graham price ratios are 1.18, 1.45 and 1.70. The current P/GP ratio of 1.64 shows relatively high stock price. However, the price is not unreasonable high.

The 10 year Price/Book Value ratio is 2.96. The current P/B Ratio is 3.92, some 32% higher. This shows a rather high current stock price.

The 5 year median dividend yield is 1.80% and the current dividend yield is 1.83%. The current is only 1.8% higher than the 5 year median. What you want is a current dividend yield above the 5 year median when you buy a stock. This shows that the current stock price is reasonable as the dividend yield is higher, but not much higher than the 5 year median dividend yield.

The 10 year median dividend yield is 1.81 and the 10 year median high dividend yield is 2.19%. The stock has seen better relative prices, but the current price is at a reasonable price by this measure.

When I look at analysts’ recommendations I find Buy, Hold and Sell. The vast majority is in the Hold category and the consensus is a Hold. The consensus 12 month’s stock price is $45.10. This implies a 10.6% total return over the next year.

One analyst said that dairy demand remains stagnant in North America with the strong milk supply keeping competitive pressures high and restricting margin expansion. However, other analysts do feel that Saputo is a solid company. This is a retail company and these things happen. Saputo recently (Q4) took a $125M goodwill impairment charge.

A couple of analysts feel that the stock price is too high currently. Certainly, these analysts do not see much in the way of future growth in this company. Buy analysts on the other hand see this as a Saputo as a great company with solid management and a decent dividend.

This stock is talked about in a G&M article called How to build a winning portfolio. See G&M article.

My stock price testing gives mixed results. It depends what you look at. With mixed results, I tend to look at the P/B Ratios and the dividend yield. These also give mixed results with the P/B Ratios showing the price as a bit high and the dividend yield showing the price reasonable. Generally, I go with the dividend yield, unless there is a good reason not to. For this stock, I would go with the dividend yield and say the price is reasonable as it is basically at a median relative price.

This is a retail stock and I bought it for diversification. I am pleased with this stock and will continue to hold my shares. I will not be buying more for the simple fact that I already have enough shares. I never let anyone stock represent too high a percentage of my portfolio.

Saputo produces, markets, and distributes a wide array of products of the utmost quality, including cheese, fluid milk, yogurt, dairy ingredients and snack-cakes. Saputo is the twelfth largest dairy processor in the world, the largest in Canada, the third largest in Argentina and among the top three cheese producers in the United States. Our products are sold in more than 50 countries under well-known brand names. Its web site is here Saputo. See my spreadsheet at sap.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

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