Landec Corp. – Value Analysis (NASDAQ:LNDC) : November 20, 2017

Capitalcube gives Landec Corp. a score of 53.

Our analysis is based on comparing Landec Corp. with the following peers – PolyOne Corporation, Westlake Chemical Corporation, Huntsman Corporation, Kraft Heinz Company, Pinnacle Foods, Inc., J. M. Smucker Company, Campbell Soup Company, General Mills, Inc., Air Products and Chemicals, Inc. and Fresh Del Monte Produce Inc. (POL-US, WLK-US, HUN-US, KHC-US, PF-US, SJM-US, CPB-US, GIS-US, APD-US and FDP-US).

Investment Outlook

Landec Corp. has a fundamental score of 53 and has a relative valuation of UNDERVALUED.

Fundamental Score

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Company Overview

  • Considering peers, relative underperformance over the last year and the last month suggest a lagging position.
  • It trades at a lower Price/Book multiple (1.52) than its peer median (2.83).
  • The market expects faster earnings growth from LNDC-US than from its peers and also a turnaround in its current ROE.
  • LNDC-US has relatively low net profit margins while its asset efficiency is relatively high.
  • Compared with its chosen peers, changes in the company’s annual earnings are better than the changes in its revenue, implying better than median cost control and/or some economies of scale.
  • LNDC-US‘s return on assets currently and over the past five years has trailed the peer median and suggests the company might be operationally challenged relative to its peers.
  • The company’s relatively low gross and pre-tax margins suggest a non-differentiated product portfolio and not much control on operating costs relative to peers.
  • Compared with the peers chosen, LNDC-US has had faster revenue growth in prior years and a current P/E ratio that suggests faster growth in the future suggesting superior growth expectations.
  • The company’s capital investment program and to-date returns suggest that the company is likely making big bets on the future.
  • LNDC-US has the financial and operating capacity to borrow quickly.

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Leverage & Liquidity

LNDC-US has the financial and operating capacity to borrow quickly.

  • With debt at a relatively low 14.40% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 24.12%), and a well-cushioned interest coverage level of 13.01x, LNDC-US can probably borrow quickly. We classify the company as Quick & Able in terms of its capacity to raise additional debt.
  • All 10 peers for the company have an outstanding debt balance.

LNDC-US has maintained its Quick & Able profile from the recent year-end.

  • LNDC-US‘s interest coverage is its highest relative to the last five years and compares to a low of 5.75x in 2016.
  • Though its interest coverage increased to 13.01x from 7.80x (in 2017), its peer median remained relatively stable during this period at 7.37x.
  • Interest coverage rose 5.64 points relative to peers.
  • LNDC-US‘s debt-EV is greater than (but within one standard deviation of) its five-year average debt-EV of 12.21%.
  • While its debt-EV increased to 14.40% from 12.70% (in 2017), its peer median decreased during this period to 24.12% from 25.80%.
  • Relative to peers, debt-EV rose 3.39 percentage points.

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Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
PolyOne Corporation 34.2 1.96 4.98 20.85
Westlake Chemical Corporation 24.14 2.31 6.57 37.63
Huntsman Corporation 49.59 1.87 4.4 28.21
Kraft Heinz Company 24.07 0.77 5.66 15.9
Pinnacle Foods, Inc. 30.88 1.8 3.51 15.76
J. M. Smucker Company 27.53 0.96 7.37 19.72
Campbell Soup Company 18.49 0.79 15.17 38.14
General Mills, Inc. 24.09 0.74 9.32 26.51
Air Products and Chemicals, Inc. N/A 2.36 13.3 48.8
Fresh Del Monte Produce Inc. 11.05 2.64 27.36 93.33
Landec Corporation 14.4 1.53 13.01 46.71
Peer Median 24.12 1.8 7.37 28.21
Best In Class 11.05 2.64 27.36 93.33

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Company Profile

Landec Corp. engages in the design, development, manufacture, and sale of health and wellness products for food and biomaterials markets. It operates through the following segments: Packaged Fresh Vegetables, Food Export, Biomaterials, and Other. The Packaged Fresh Vegetables segment sells Breathe Way packaging to partners for fruit, and vegetable products. The Food Export segment includes purchase and sale of whole commodity fruit, and vegetable products to Asia. The Biomaterials segment consists of products utilizing hyaluronan, a naturally occurring polysaccharide that is distributed in the extracellular matrix of connective tissues in both animals and humans, and non-HA products for medical use in the Ophthalmic, Orthopedic, and other markets. The Other segment focuses on corporate general and administrative expenses, non-packaged fresh vegetables and non-biomaterials interest income, and income tax expenses. The company was founded by Ray Stewart on October 31, 1986 and is headquartered in Menlo Park, CA.

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