Flowers Foods Inc (FLO, Financial) has recently experienced a daily loss of 6.9% and a three-month decline of 15.89%, with an Earnings Per Share (EPS) of 1.05. These figures prompt the question: Is the stock modestly undervalued? This article delves into the valuation analysis of Flowers Foods, providing an in-depth look at its financial health and intrinsic value. Read on to understand why Flowers Foods might be an attractive investment opportunity.
Company Overview
Flowers Foods Inc is a prominent American bakery food producer serving both retail and foodservice sectors across the United States. The company's diverse product range includes fresh breads, buns, rolls, snack cakes, and tortillas, which are distributed to supermarkets, convenience stores, and restaurants. Among its key brands are Nature's Own, Whitewheat, Cobblestone Bread, Wonder, Dave's Killer Bread, Canyon Bakehouse, Mrs. Freshley's, and Tastykake. With a current stock price of $20.63 and a market cap of $4.40 billion, Flowers Foods presents itself as modestly undervalued when compared to the GF Value of $28.74, suggesting a potential for price correction and investment upside.
Understanding GF Value
The GF Value is a proprietary measure calculated to estimate the intrinsic value of a stock. It is derived from a blend of historical trading multiples, an adjustment factor based on the company's past performance, and projected future business outcomes. When a stock's price lies significantly below the GF Value Line, it suggests potential for higher future returns, indicating that the stock may be undervalued. Conversely, a price well above the line could imply overvaluation and lower expected returns. At $20.63 per share, Flowers Foods (FLO, Financial) appears to be modestly undervalued, hinting at a favorable long-term investment potential relative to its business growth.
Financial Strength Assessment
Investing in companies with robust financial strength is vital to minimize the risk of capital loss. Flowers Foods' financial strength can be gauged by its cash-to-debt ratio and interest coverage. Despite a cash-to-debt ratio of 0.01, which is lower than 95.79% of its peers in the Consumer Packaged Goods industry, the company's overall financial health is deemed fair, with a GuruFocus financial strength rating of 5 out of 10.
Profitability and Growth Prospects
Profitable companies, particularly those with a history of consistent profitability, tend to be safer investments. Flowers Foods has maintained profitability for the last 10 years, with a revenue of $5 billion and an EPS of $1.05 over the past twelve months. Its operating margin stands at 3.86%, ranking in the lower half compared to its industry counterparts. Furthermore, the company's profitability rank is 7 out of 10, which is considered fair. In terms of growth, Flowers Foods' 3-year average annual revenue growth rate is 5%, positioning it in the middle range within its industry. The 3-year average EBITDA growth rate of 5.7% also reflects a moderate growth trajectory.
ROIC vs. WACC Analysis
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) provides insight into its value creation efficiency. Flowers Foods' ROIC over the past 12 months is 5.25, slightly below its WACC of 6.01, suggesting that the company is currently not generating excess returns over its capital costs. This comparison is a crucial factor in assessing the company's profitability and potential for future growth.
Conclusion
Overall, Flowers Foods (FLO, Financial) presents an investment case of being modestly undervalued. The company's financial condition and profitability are fair, and its growth is in line with industry averages. For a more comprehensive understanding of Flowers Foods' financials and potential for investment, interested parties can explore its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
