By:
Patrick Wade, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary
• Calavo Growers, Inc. (NASDAQ:CVGW) is a company that engages in the
distribution, preparation, and marketing of avocados and other perishable food.
Calavo Growers was originally pitched by Mark Lakowske, an AIM and Marquette
University alumni. Since it’s been added to the portfolio, it’s appreciated
22.56%, which is a contributing factor to the success of the AIM Equity Fund.
Lakowske reported on Calavo Growers back in February of 2016, but since then a
lot has happened.
• Calavo Growers and
Renaissance Food Group showcased new items at United Fresh including the Intense Tomatoes Brand.
• Calavo Growers acquired
a new production facility located in California.
• Trump’s renegotiation of
NAFFTA will create uncertainty with Calavo’s avocado production.
Key
points: Calavo Growers, Inc. and Renaissance Food Group, a
business segment of Calavo, announced a joint effort at the United Fresh show
where the two companies presented new products. These new products included
items such as Intense Tomatoes, Avocado Chocolate Mousse, and Red Onion Roasted
Garlic Hummus. What makes these tomatoes so intense you ask? These Intense Tomatoes
are a proprietary tomato that retains its color and juice after it’s cut, which
makes it superior for cooking, dips, and sandwiches. CEO, Lee E. Cole, said,
“As Calavo Growers continues to evolve and grow in a highly competitive,
fast-moving market, we are proud to showcase our vast product offerings to the
industry.”
On November 3, 2016
Calavo Growers announced that it purchased a production facility that’s located
in Riverside, CA. Renaissance Food Group, which distributes high quality fresh
food, is expected to benefit from this addition due to its growing customer
base in the southwestern portion of the United States. The facility covers a
total of 128,000 square feet on approximately 11 acres. Calavo describes the
facility as “turnkey” as its state of the art facilities will allow for optimal
start up, safety measures, and quality production flow. It’s situated well in
regards to transportation by having excellent interstate and rail access.
Although Calavo seems to
be expanding in terms of its product lines and production/distribution
facilities, it’s currently facing one possible challenge: the President of the
United States. President Trump has stated on multiple occasions that he intends
to build a wall between the U.S. and Mexico and “make Mexico pay for it”. The
wall will cost somewhere between $15-20 billion, so obviously Mexico has
declined to pay for it. Instead Trump proposed a 20% tax on goods imported from
Mexico. Essentially, driving the price of avocados higher, which could be detrimental
to Calavo’s revenues.
What
has the stock done lately?
Since President Trump won
the election, Calavo’s stock has declined from a high of $66.35 on November 16th
to where it currently sits at $55.40. With this depreciation in the past two
months, Calavo needs to hear that President Trump won’t impose the 20% tax, but
will instead find another way to fund his wall.
Past
Year Performance: In the past year
the price has been hovering a little above $50 and has seen capital gains of
10%. Currently, six analysts cover this stock with an average price target of
$75.17 which represents an upside of 36%. It’s seen healthy growth in the past
year, and I expect it to continue in the future.
Source:
FactSet
My
Takeaway
President Trump’s election
has obviously caused Calavo Growers to depreciate, but I think the 20% tax is
nothing more than a negotiation tactic – after all, he is a business man.
Putting politics aside, I believe Calavo’s addition of a diverse product line
with serve them well in the future and position themselves to be less reliant
on avocados.
Additionally, their acquisition of the production facility located
in California will help expand their Renaissance Food Group segment. Overall, I
believe this company still has growth potential, but that will only be realized
after President Trump eases up on Mexico.
