Posts Tagged ‘finance

20
Apr
09

HAPPY 4/20! A fundamental analysis of Smithfield Foods Inc (SFD)

I don’t smoke weed, but I am addicted to title-spam. So happy 4/20!

The following is a very simple fundamental analysis of Smithfield Foods (NYSE:SFD) I performed for a Fundamentals of Investments course. I’m posting it because I have nothing else to post. Also, maybe this will show up on some future education searches, and I’ll be plagiarized. That’s every blog owner’s dream.

Full disclosure: None.

“Any way you slice it (pun intended), Smithfield Foods appears a firm currently in bad financial shape. In the relatively low risk Meat Products industry, it is being hammered by its competition. With a negative ROE, SFD is seriously outperforming its industry. In fact, competitors within the industry are actually doing quite well, beating the S&P in both ROE and ROA. A small consolation for SFD is it’s lower margin of financial leverage than fellow industry partners. The industry is leveraged by a factor of 4, whereas SFD is only leveraged by a factor of ~3. The competition is using this leverage very profitably at the moment, whereas SFD is at least stemming the tide of blood in its losses. This lower level of financial leverage may allow SFD to turn profitable sooner, although it would also limit the levels of profits it could achieve due to leverage.
Fundamentally speaking, there may be a silver lining on the horizon. SFD’s DuPont system ratios (aside from Profit Margin) show SFD may be ready to jockey its way to greater profitability in the future. It is turning over inventory at a much higher rate than industry norms. This reflects on a higher than average ATO, and shows efficiency in production. Coupled with much higher than industry average Interest Coverage and Current Ratios SFD appears to at least have the assets it needs to operate. Perhaps underproduction is an issue the corporation needs to address.
Finally, it appears that although SFD has weak profitability (astoundingly high P/E ratio!) it’s low Market to Book makes it an attractively priced investment, if only with the possibility of liquidation. Earnings forecasts predict the entire industry will under perform the S&P during the coming years by a factor of more than 2. Given this forecasting, it is safe to say SFD is not “safe” at all, which is reflected by a very high Beta value.
So what would I recommend to an investor looking at SFD? As always it depends on situation. Should the investor be looking for the stability the industry normally affords, I would recommend they not hold positions in SFD. It is currently spectacularly under performing its peers. However, a more risk friendly investor might find SFD an intriguing option. It appears to be a company with a sound asset base and the means to grow. With it’s low market to book, it’s a particularly attractive investment that could produce substantial growth if the company “turns it around” or is taken over and liquidated.

Return on Equity (ROE) = -5.66 [Ind: 21.59, Sec: 29.29, S&P500: 18.97]
Return on Assets (ROA) = -2.02 [Ind: 5.35, Sec: 10.87, S&P500: 8.00]
DuPont System ratios:
Profit Margin: -1.30 [Ind: 4.92, Sec: 11.10, S&P500: 10.32]
Total Asset Turnover: 1.56 [Ind: 1.24, Sec: 1.07, S&P500: 1.02]
Interest Coverage Ratio: 3.11 [Ind: 0.06, Sec: 0.59, S&P500: 32.21]
Leverage Ratio: 1.11475 [Ind: 1.05168, Sec: 1.05474, SP: 1.11493]
Inventory Turnover Ratio: 5.52 [Ind: 0.94, Sec: 0.79, S&P500: 10.95]
Liquidity Ratios:
Current Ratio:2.08 [Industry: 1.33, Sector: 1.21, S&P500: 1.76]
Quick Ratio: 0.65 [Industry: 0.65, Sector: 0.65, S&P500: 1.24]
Market Ratios:
Market-to-Book Ratio: 0.56 [Ind: 1.28, Sec: 1.64, S&P500: 2.99]
Price-Earnings Ratio: 429.40 [Ind: 15.43, Sec: 15.26, S&P500: 15.66]
Earnings Yield: -10.1071 [Ind: 2.4765, Sec: 2.1098, S&P500: 8.0134]

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19
Jan
09

Blogging, New Years Resolutions, and Productivity

blog

To all the haters, hahahahaha. Nicely done.

I’m not the type to make a lot of New Year’s Resolutions ™. Even though I really should quit smoking, lose 15 pounds, and stop giving money to hobos, I’ve never put those things on a list and created firm deadlines. Commitment can be scary, and I don’t like to tie myself to one blood type, much less three nebulous goals. And as much as I’d like to contribute to Shapes’ fitness’s earning reports, I’m not ready to do that. Camel needs my money to pay all those artists who design their excellent “Designers Series” cigarette packages. I’m nothing if not a supporter of the The Arts. Lastly, I’m lying, I don’t give hobos money anymore. In fact, I’m pretty aggressive about this. I’ve even developed a whole deaf-mute routine where I pantomime and yell “No hablo Deutschlis!” to get out of parting with my sort-of-hard-earned-money.

I settled on a more vague plan this year. In reality, it only coincided with the New Year through coincidence, but I figured I might as well run with that and pretend it was all part of a grand Divine Scheme.

This year, I’d make the commitment to doing one hour a day of stuff that was directly related to “self-improvement”. As it happened, this started out with reading a chapter or two of an interesting book. I even have a huge stack of books selected for this purpose, and they’re all neatly lined up on my desk at work, where they are now mocking me.

Fun list of books:

 “Rich Dad, Poor Dad” by Robert Kiyosaki (which someone got me as a very thoughtful Christmas gift, even though I assume it’s rather elementary material).

 “Home Buying for Dummies” by Eric Tyson (because sooner or later, I’m going to need to do this).

 “Men’s Health: Better Body Blueprint” by Michael Mejia (as it was already at my desk, and I’d forgotten I had it for at least a year).

 NOLO’s “Patent It Yourself” by David Pressman (no specific reason, but I found it at a thrift store, and in my experience, NOLO books are awesome).

 J.K. Lasser’s “Small Business Taxes 2007” by Barbara Weltman (see above. Even though its out of date, it was cheap, and small business taxes fascinate me).

 Sams “Teach Yourself Adobe Dreamweaver CS3 in 24 hours” by Betsy Bruce (I just realized this was written by a woman! I might have to throw it away, I don’t want to design websites about Cats or Gothic Erotica).

 The Motley Fool “You Have More than You Think” by David + Tom Gardner (Another wildly out of date edition. I think this one focuses on the late 90’s dot com boom! Nevertheless, a great book).

 “Quickbooks 2008 for Dummies” by Stephen L. Nelson (which I’ve had since QB2008 was released, meaning it’s out of date as well. And from what I’ve already read of it, it’s not very good).

 And lastly, my “Principals of Managerial Finance” book that I was *supposed* to read last semester for my introductory Corporate Finance class. However, that class was jam-stuffed with hours of lectures every week, and the book was barely opened.

All of this went well for exactly one day, and I have the post-it note bookmark in the Men’s Health guide to prove it. Then, right as school started, my company dropped an unannounced client on me with exactly ZERO forewarning. This client turned out to be at least as large as all our other clients combined. Needless to say, I haven’t had much time to focus on “me time”. Quiet baths, relaxing walks, obsessive-compulsive collecting behavior. It’s been rough.

We’ve finally gotten most of the preliminary work done, so things have slowed down a bit. Now it’s time to start focusing on this stuff again, and I’m looking forward to it. Although I guess I really should focus on what’s important for school right now: publishing more blogs about my blogging productivity!

And that’s a wrap!

28
May
08

Grip it! On another level

A recent post on Get Rich Slowly (GRS) about “Purpose Driven Investing” is making me re-evaluate how I manage my savings. The meat of the article is this: Yield to the natural human urge for instant gratification and divide your savings goals into small, fun to manage chunks. So instead of one (hopefully) large savings fund sitting in the United High Interest Credit Union, you have a few smaller accounts each based on the asset’s needed liquidity and the interest rate that liquidity, and possibly risk, bears. Thus divided, one can view his goals piecemeal, and meet them “faster”.

In fact, I already have, to some degree, done this by setting aside my emergency savings in a high yield savings account. But as I’m trying to get all my finances set up in Quicken, and generally just become more efficient with the whole process of saving and investing, an article like this has given me some ideas.

While GRS has taken this plan to a pretty elaborate level with multiple accounts and such, I don’t believe that will necessarily be optimal for me. However, I think I’m going to start utilizing a series of virtual “liability” accounts to represent the specific savings goals I have (For the curious: Emergency savings, end of year IRA contributions, vehicle maintenance, vacation fund, and furniture purchases). Actually juggling a bunch of bank accounts is too much effort. But creating seperate, fake liabilities in Quicken which I can allocate from one real account will work in much the same way, just easier.

And even though I know this kind of thing on GRS is preaching to the choir, a lot of informative writing usually is. As someone who reads the GRS blog, I’m naturally going to be interested (ha!) in applying this strategy. I’m not even in the financial services field yet, but I’m constantly faced with situations where friends and family need advice that appears simple to me, but elusive to them. That’s, hopefully, one of the beautiful things about this whole “blogging” phenomena. You have your completely insular blogs like GSR dedicated to one topic or another. But then again, there’s some general interest content out there to expose you to completely random subjects. I guess right now, this blog leans towards that.

Or, I could specialize in cracked XXX web password trading. SHOW ME THE MONEY!