Farmer Brothers Co. – Value Analysis (NASDAQ:FARM) : November 10, 2017

Capitalcube gives Farmer Brothers Co. a score of 63.

Our analysis is based on comparing Farmer Brothers Co. with the following peers – Coffee Holding Co., Inc., J. M. Smucker Company, Kraft Heinz Company and TreeHouse Foods, Inc. (JVA-US, SJM-US, KHC-US and THS-US).

Investment Outlook

Farmer Brothers Co. has a fundamental score of 63 and has a relative valuation of OVERVALUED.

Fundamental Score

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Company Overview

  • Compared to peers, relative outperformance over the last year has faded more recently.
  • It currently trades at a Price/Book ratio of (2.43).
  • FARM-US‘s operating performance is relatively good compared to its peers. The market currently does not expect high earnings growth relative to its peers but seems to expect the company to maintain its relatively high rates of return.
  • FARM-US‘s median net profit margins and relatively high asset efficiency give it some operating leverage.
  • Changes in annual revenues are in line with its chosen peers but lags in terms of earnings suggesting that the company is less cost conscious and may be spending for growth.
  • FARM-US‘s return on assets currently and over the past five years suggest that its relatively high operating returns are sustainable.
  • The company’s margins are around the peer medians and do not suggest any benefit from a pricing or an operating cost advantage versus peers.
  • While FARM-US‘s revenues growth has been below the peer median in the last few years, the market still gives the stock a P/E ratio that is around peer median and seems to see the company as a long-term strategic bet.
  • The company’s level of capital investment suggests it might be under-investing in a business with above median returns.
  • FARM-US has some amount of debt capacity available.

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Leverage & Liquidity

FARM-US has some amount of debt capacity available.

  • With debt at a relatively low 5.42% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 24.96%), and a reasonable interest coverage level of 2.74x, FARM-US has a fair amount of debt capacity available.
  • All 4 peers for the company have an outstanding debt balance.

FARM-US has moved to a relatively low leverage from an Quick & Able profile at the recent year-end.

  • FARM-US‘s interest coverage is downward trending and is below (but within one standard deviation of) its five-year average interest coverage of 17.73x.
  • The decrease in its interest coverage to 2.74x from 5.52x (in 2017) was also accompanied by a decrease in its peer median during this period to 4.45x from 6.28x.
  • Interest coverage fell 0.95 points relative to peers.
  • FARM-US‘s debt-EV is greater than (but within one standard deviation of) its five-year average debt-EV of 4.86%.
  • Though its debt-EV has remained relatively stable at 5.42% compared to 2017, its peer median has increased to 24.96% from 24.07% during this period.
  • Relative to peers, debt-EV fell 0.90 percentage points.

Access the detailed analysis for Farmer Brothers Co.

Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Coffee Holding Co., Inc. 24.96 2.91 4.45 15.46
J. M. Smucker Company 27.67 0.97 7.37 19.18
Kraft Heinz Company 24.07 0.77 5.66 15.9
TreeHouse Foods, Inc. 40.97 2.16 2.74 18.49
Farmer Bros. Co. 5.42 1.2 2.74 85.54
Peer Median 24.96 1.2 4.45 18.49
Best In Class 5.42 2.91 7.37 85.54

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Company Profile

Farmer Brothers Co. engages in the manufacture, wholesale, and distribution of coffee, tea, and culinary products under its own brands to restaurants, hotels, casinos, hospitals, and other food service providers. The company’s products include roasted coffee, liquid coffee, coffee related products, such as coffee filters, sugar and creamers, assorted teas, cappuccino, cocoa, spices, gelatins and puddings, soup, gravy and sauce mixes, pancake and biscuit mixes, and jellies and preserves. Its services include beverage equipment services and menu solutions. The company was founded by Roy E. Farmer in 1912 and is headquartered in Northlake, TX.

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