Berkshire-Heinz Merger Drives More Value to All Food Giants
Feb 14th 2013 10:20AM
The Berkshire Hathaway Inc. (NYSE: BRK-A) $28 billion buyout of H.J. Heinz Co. (NYSE: HNZ) is already all over the news. What investors need to consider now is how this impacts other large food industry players. The end result is that $72.50 per share values Heinz at 20.5 times its expected fiscal April 2013 earnings estimate of $3.54 per share. Even when you consider the 3.4% dividend yield at the prior close, this is a premium valuation that is driving interest in the food sector. This was at more than 6.7 times the stated book value, according to Finviz.com.
We would caution about chasing these. Some of these companies are already at highs, and some are either controlled or would be very difficult for an outside buyer to acquire. The valuations look very high and may drive away value investors with trailing P/E ratios and forward P/E ratios being above the S&P 500 Index average. We did not value the Kraft Foods breakup, and we cut the list off after a point where a company could reasonably be acquired.
Dean Foods Co. (NYSE: DF) trades at 25 times earnings, but Finviz.com lists its forward P/E as about 13. Dean Foods is still in a turnaround, and its market cap is $3.1 billion. Finviz shows that it trades at more than 60 times book value. Note that the book value here may be distorted due to issues the company has faced and due to restructuring efforts. There is no dividend, and Dean Foods shares are up 0.4% at $16.77 on the day.
McCormick & Co. (NYSE: MKC) recently hit a snag, but its market cap is still $7.7 billion. It trades at 21 times trailing earnings, and Finviz lists its forward P/E as almost 18. The dividend yield here is 2.1%, and Finviz shows that it trades at five times book value. Shares are up 1% at $64.75.
Tyson Foods Inc. (NYSE: TSN) is worth about $8.5 billion and trades at about 14.5 times earnings. The forward P/E is only 10, according to Finviz. As a reminder, due to the founding family control, this is not as easily accessible as some investors might think. The dividend yield is a pathetic 0.9%, and Finviz shows that it trades at 1.4 times book value. Shares are up only 0.9% at $24.08, but that is a new 52-week high.
Hormel Foods Corp. (NYSE: HRL) is worth some $9.5 billion. It trades at closer to 20 times earnings, but it trades at about 18.3 times the forward October 2013 earnings estimate. Its dividend yield is only 1.9%. Finviz shows that it trades at 3.3 times book value. Shares are up 0.8% at $36.12.
J.M. Smucker Co. (NYSE: SJM) is worth $9.8 billion and trades at 21 times trailing earnings. Finviz shows that it trades at 15.9 times forward earnings. The dividend yield is 2.3%, and Finviz shows that it trades at 1.9 times book value. Shares are up 1.8% at $91.96.
Campbell Soup Co. (NYSE: CPB) is worth $12 billion in market capitalization and trades at 16 times trailing earnings. Finviz shows its forward P/E as 14.2, and it trades at more than 10 times book value. Campbell's dividend yield is 3%, and its shares are up 3.5% at $39.52.
ConAgra Foods Inc. (NYSE: CAG) is worth some $13.9 billion in market capitalization. Finviz shows it trading at just over 20 times earnings, but only about 14.2 times forward earnings expectations. This is also just under three times book value. Its dividend yield is 3%, and shares are up 0.8% at $33.74.
Kellogg Co. (NYSE: K) is worth some $21.25 billion and trades at 23 times earnings. Finviz shows its forward multiple on earnings as being 14.4, and its price-to-book ratio is almost 9. Kellogg's dividend yield is 3%, and its shares are up 1% at 59.95.
General Mills Inc. (NYSE: GIS) is already worth about $28 billion, so it is getting to the cut-off level of any possible "easy" buyout price. It trades at about 16 times earnings, and the forward earnings multiple is listed by Finviz as being 14.8. General Mills trades at about four times book value, and it has a dividend yield of 3.1%. Shares are up 2.2% at $43.95 so far.
H. J. Heinz shares are up about 19.9% to $72.52, a new all-time high.
Filed under: 24/7 Wall St. Wire, Food, Mergers & Acquisitions, Mergers and Buy Outs, Value Investing Tagged: BRK-A, CAG, CPB, DF, featured, GIS, HNZ, HRL, K, MKC, SJM, TSN