Andersons: Zacks’ Bear of the Day Play

Andersons (ANDEAnalyst Report) has seen a recent wild swing of a huge miss, a big beat and another huge miss. This has caused earnings estimates to decrease and that has cause its Zacks Rank to fall to a #5 (Strong Sell) and today it is the Bear of the Day.Farming For Futures

This has been a difficult year for farmers. There are numerous reports that talk about how futures for corn, wheat and soybeans have fallen between 5% and 20% this year.

Low oil prices might allow for crops to get to market in a less expensive manner, but at the end of the day lower crop prices mean less “CapEx” out of the farm.

Company Description

The Andersons was founded in 1947 by Harold Anderson in Maumee, Ohio with a single grain elevator. It has grown into an agribusiness company with 6 business segments across North America, including in grain, ethanol, plant nutrient, turf and cob products and consumer retailing.

It also has rail equipment leasing interests in Canada and Mexico.

Revenue Drops In A Big Way

As I glanced over the numbers that ANDE has posted of late, I see that in each of the last four quarters the company has missed the Zacks Consensus Estimate for revenue, and its not by just a million or two. These are big misses, negative revenue surprises of 6%, 27%, 5% and 11%.

If you are not making it on top, then expenses have to be rushing towards zero if you are going to beat on bottom. Let’s take a look there.

Earnings History

ANDE has beat in four of the last seven quarters, but they also have missed in three of seven, and the misses were all negative earnings surprises of 21% or more.

The real issues here is the last three quarters. The March 2014 quarter was a miss of $0.22 or 21% and that was followed up by a big beat of $0.41 or 35%. The company slipped up on the most recent report with a miss of $0.17 for a 22% negative earnings surprise.

As noted earlier, each of the last four quarters has seen the company miss on the topline, but the most recent quarter saw revenue of $953M, down from $1.312B in the previous quarter and $1.181B in the year ago quarter. That is causing analysts to pull back on a lot of earnings expectations.

Earnings Estimates

Estimates popped back up after the June 2014 quarter was reported in August. The Zacks Consensus Estimate jumped from $3.47 to $4.36 as most thought this company was out of the danger zone. Estimate kicked higher in each of the next two months and peaked at $4.47. Following the recent miss, the Zacks Consensus Estimate tumbled down to $4.15.

With it being December, most investors are looking forward to next year, and the picture is actually worse in terms of earnings estimates. The Zacks Consensus Estimate for 2015 reached a high of $4.67 in October, but hit $4.27 in November on its crash down to $4.18 in December. With futures on crops still rather weak, analysts may continue to lower numbers into the new year.

Valuation

The valuation here looks interesting, but there are plenty of red flags too. The trailing and forward PE of 12x is well below the 19x and 17x multiples for the industry average. The price to book multiple of 1.8x looks like a value, but the industry average is only 3.4x… and the most stunning number is clearly the price to sales of 0.3x when the industry average is calling for a 2.5x multiple. That last one really hit me. Why so low?

Well this year the company is seeing a 16% contraction in revenue compared to a 2.6% contraction for the industry. Next year, the industry is expecting to bounce back and see growth of 4.5%, but ANDE is looking at a flat year for revenue growth. That also means they are looking at a flat year for earnings growth while the industry average is looking at 17.7% earnings growth. That will kill your multiple.

Chart

Zacks has developed a chart that helps investors see how earnings estimates have impacted the price of the stock over the last several years. We call this chart the price and consensus chart, and each color coded lines represents analyst estimates over a designated year. As estimates decrease, the stock tends to follow. The Zacks Rank is impacted by earnings estimate increases (decreases), beats (misses) and incorporates the idea of analyst agreement and magnitude. As a Zacks Rank #5 (Strong Sell) we see that estimates are moving lower.

This chart did look good for a long time, but now, it is telling me that the elevator ride is turning around.

Follow Brian Bolan on twitter at @BBolan1

Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio.

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