Earnings momentum for Farmer Bros. Co. (FARM) has soared over the past 60 days since this coffee company announced a solid fiscal first-quarter performance last month. Furthermore, the Zacks #1 Rank (Strong Buy) touched its 52-week high of $14.22 on December 17.
First Quarter
On November 5, Farmer Bros reported first-quarter 2013 earnings of 19 cents per share, significantly surpassing the Zacks Consensus Estimate of breakeven. Earnings were also substantially improved upon the prior-year loss of 50 cents as gross margin expansion and solid expense control made up for the lukewarm revenues. The top line declined 2% to $119.2 million.
Gross margins improved 400 basis points to 37% during the quarter due to lower coffee costs. Adjusted EBITDA improved 157% year over year to $12.1 million, due to gross margin expansion and cost control. Going forward, the company believes that lower coffee costs will further improve the company’s financials.
Earnings Estimates Jumping
Over the last 60 days, the Zacks Consensus Estimate for 2013 has soared 250% to 42 cents, as 2 of 3 estimates were revised higher. This reflects a year-over-year increase of 122.2%. The Zacks Consensus Estimate for fiscal 2014 has risen to a profit of 47 cents per share from a loss of 2 cents over the same time frame, reflecting a year-over-year increase of 11.9%.
Valuation
Farmer Bros looks expensive at current levels. It currently trades at a forward price-to-earnings (P/E) of 33.45x, representing a premium of 65.2% to the peer group average of 20.25x. On a price-to-book basis too, the stock is trading at a premium to the peer group. However, the shares trade at a discount of 4.2% to the peer group on a price-to-sales basis. The premium valuation looks justified given its strong fundamentals.
Shares of Farmer Bros have been rising consistently since the announcement of the first quarter results. Moreover, the stock is currently trading above its 50- and 200-day moving averages, which stand at $10.50 and $9.20, respectively. In fact, the stock has been trading above its 50-day moving average since mid-November 2012 and above its 200-day moving average since mid-September 2012. Volume is averaging roughly 91K daily. The stock is expected to deliver an earnings growth of 20% in the long term.
Based in Delaware, Farmer Bros manufactures coffee, tea and other culinary products and distributes them to restaurants, hotels, casinos, hospitals and other food service providers. The market cap of the company is $215.02 million.
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