Blog Archives

Calavo Growers

9/29/2016

Calavo Growers packages, and distributes avocados and other fruits, as well as their fresh prepared food to restaurants, stores, and individual customers worldwide. While the company is based in Santa Paula, California, avocado production is cultivated throughout the state of California, as well as Central and South America. Calavo Growers was established in 1924 as an agricultural cooperative and was instrumental in launching the California avocado industry. The company operates its business through three divisions including Fresh Products, Calavo Foods and Renaissance Food Group.

Calavo Growers, Inc. markets, and distributes avocados, prepared avocados, and other perishable foods to food distributors, produce wholesalers, supermarkets, convenience stores, and restaurants worldwide. It operates in three segments: Fresh Products, Calavo Foods, and RFG. The Fresh products segment distributes avocados and other fresh produce products; and procures avocados grown in Mexico, as well as various other commodities, including tomatoes, papayas, and pineapples. The Calavo Foods segment is involved in purchasing, manufacturing, and distributing prepared products, including guacamole, tortilla chips, and salsa. The RFG segment produces, markets, and distributes fresh-cut fruits, ready-to-eat vegetables, recipe-ready vegetables, and deli products. The company offers its products primarily under the Calavo and RFG brands, and related logos; and Avo Fresco, Bueno, Calavo Gold, Calavo Salsa Lisa, Salsa Lisa, Celebrate the Taste, El Dorado, Fresh Ripe, Select, Taste of Paradise, The First Name in Avocados, Tico, Mfresh, Maui Fresh International, Triggered Avocados, ProRipeVIP, Garden Highway Fresh Cut, Garden Highway, and Garden Highway Chef Essentials trademarks. Calavo Growers, Inc. was founded in 1924 and is headquartered in Santa Paula, California.
(Summary) (Company) (Chart)

Calavo Growers Inc. (CVGW) declared a $0.90/share annual dividend, a 12.5% increase from its prior dividend of $0.80. The forward yield is currently 1.35% and is payable on Dec. 8 for shareholders of record Nov. 17. The stock goes ex-dividend on Nov. 15.

27 September 2016
Price $67.01
1yr Target $72.00
Analysts 5
Dividend $0.90
Payout Ratio 46.63%

1yr Cap Gain 7.44%
Yield 1.34%
1yr Tot Return 8.78%

P/E 34.79
PEG 4.97
Beta 0.53

EPS (ttm) $1.93
EPS next yr $2.32
Forward P/E 28.93
EPS next 5yr 7.00%
1yr Price Support $16.24

Market Cap $1.17 Bil
Revenues $896.00 Mil
Earnings $33.60 Mil
Profit Margin 3.75%

Quick Ratio 1.00
Current Ratio 1.40
Debt/Equity 0.09

1yr RevGR 9.49%
3yr RevGR 15.67%
5yr RevGR 16.55%

1yr EarnGR 15,700.00%
3yr EarnGR 14.19%
5yr EarnGR 5.17%

1yr DivGR 12.50%
3yr DivGR 8.64%
5yr DivGR 10.35%

ROA 11.00%
ROE 16.90%

Background.

Due to the overwhelming interest in the avocado, many California growers planted avocado seeds that had originated in Mexico. Although slow to mature, by 1923 those avocado trees were producing a large enough crop of avocados that needed to be marketed. The problem was the lack of a marketing outlet. As a result, on January 21, 1924, Calavo Growers, Inc. was founded as the California Avocado Growers' Exchange.

The founders studied grower cooperatives that were doing well at the time, such as the California Fruit Growers Exchange, and adopted those features that would work best for the avocado industry. In the first year, the California Avocado Growers Exchange packed the 18,000 lbs. of fruit that launched the California avocado industry. Shortly after, the growers exchange adopted the name Calavo as a brand. This was the result of a naming contest in which multiple entries were submitted combining the words "California" and "avocado". Calavo quickly became the brand name of high quality avocados.

In the early 1930s, the cooperative increased its offerings to include limes, coconuts, kiwis, mangos and persimmons. Papayas were added in the late 1940s.

The California Avocado Advisory board was created in 1961, Calavo played a key role in its creation and development. The purpose was to market the California avocado industry as a whole and not just the avocado growers in the cooperative. Today it is known as the California Avocado Commission.

After 78 years as a growers cooperative, Calavo members voted to take the company public. In 2002, Calavo Growers Inc. was designated the ticker symbol CVGW on the NASDAQ National Market System. The seats on the company's board of directors were filled mainly with longtime avocado growers, and that remains so today.

My Perspective

Reader's of these articles already know that I like to own shares of companies in the farming and food business so it would be natural for me to like Calavo Growers, Inc. And I do. In fact, I'm already a shareholder of this company. I also have my shares set up so that the dividends paid are reinvested into additional shares of this company. Dividend reinvesting is one of the well kept secrets of successful investors and it's a strategy I employ on quite a few of my investments.

So my intention is to continue to accumulate additional shares of Calavo Growers through a dividend reinvestment program. But based on the technical chart above, as well as the fundamentals laid out above, I don't intend to add to my position through open market purchases at these current prices. I would rather wait and obtain shares at prices closer to $60 per share which would increase my dividend yield to nearly 1.5% and increase the one year estimated return on the price of the shares to nearly 20%.

Those are the number I can get excited about.

2 Comments

Marine Products Corporation

9/26/2016

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Buying stock in September in a company that sells boats in the spring and summer months may not seem like the best idea, but buying into a company that knows how to make a lot of money does. Marine Products Corp manufactures a great array of fiberglass boats for most boaters, skiers and fishermen.

Marine Products Corporation manufactures fiberglass motorized boats distributed and marketed through its independent dealer network. MPC is a leading designer and manufacturer of fiberglass boats under two brand names: Chaparral and Robalo. Chaparral builds sterndrive, outboard and jet drive pleasure boats, including H2O Sport and Fish & Ski Boats, SSi and SSX Sportboats, Sunesta WT Sportdecks, Signature Cruisers, SunCoast Sportdeck, Vortex Jet Boats, and SunCoast outboards. Robalo builds outboard sport fishing boats which include center console, dual console, walkaround cabin and bay boat models. The Company sells its products to a network of 147 domestic and 85 international independent authorized dealers. Marine Products' mission is to enhance its customers' boating experience by providing them with high quality, innovative powerboats.
(Summary) (Company) (Chart)

25 September 2016
Price $8.96
1yr Target $10.00
Analysts 1
Dividend $0.24
Payout Ratio 57.14%

1yr Cap Gain 11.60%
Yield 2.67%
1yr Tot Return 14.27%

P/E 21.59
PEG 2.16
Beta 1.56

EPS (ttm) $0.42
EPS next yr $0.63
Forward P/E 14.22
EPS next 5yr 10.00%
1yr Price Support $6.30

Market Cap $343.71 Bil
Revenues $255.70 Bil
Earnings $15.40 Mil
Profit Margin 6.02%

Quick Ratio 1.10
Current Ratio 3.00
Debt/Equity 0.00

1yr RevGR 21.05%
3yr RevGR 11.48%
5yr RevGR 15.43%

1yr EarnGR 62.50%
3yr EarnGR 26.78%
5yr EarnGR 28.80%

1yr DivGR 29.41%
3yr DivGR 29.71%
5yr DivGR ---

ROA 13.20%
ROE 16.80%

Operations

MPC is a leading designer and manufacturer of fiberglass boats under two brand names: Chaparral and Robalo. Chaparral builds sterndrive, outboard and jet drive pleasure boats, including H2O Sport and Fish & Ski Boats, SSi and SSX Sportboats, Sunesta WT Sportdecks, Signature Cruisers, SunCoast Sportdeck, Vortex Jet Boats, and SunCoast outboards. Robalo builds outboard sport fishing boats which include center console, dual console, walkaround cabin and bay boat models.

The Company sells its products to a network of 147domestic and 85 international independent authorized dealers. Marine Products' mission is to enhance its customers' boating experience by providing them with high quality, innovative powerboats. The Company intends to remain a leading manufacturer of recreational powerboats for sale to a broad range of consumers worldwide.

Chaparral

Chaparral manufactures 35 models in seven different product lines - H2O Sport and Fish & Ski Boats, SSi and SSX Sportboats, Sunesta Sportdecks, SIgnature Cruisers, Vortex Jet Boats, and SunCoast outboards. The Company enjoys a strong industry reputation for innovation and quality.

Chaparral models have been named "Boat of the Year" many times and received over 48 recognitions for product excellence to include 12 Boat of the Year trophies. Additionally, Chaparral has received 36 awards for product excellence, and the year it was introduced the 327SSX earned the NMMA Innovation award. At the present time, Chaparral's market share is approximately 13.9 percent.

A fiberglass fabricating company in Fort Lauderdale, Florida produced the first Chaparral boat in 1965. In 1976, Chaparral moved its operations to Nashville, Georgia. Not only did these facilities allow the fast-growing Company to expand its operations, but also the location offered an experienced labor force and better access to major interstate highways.

In 1986, RPC Energy Services acquired Chaparral. With a larger corporate entity now helping to support the Company, Chaparral management was able to devote its full attention to expanding its line of sterndrive powerboats. Today, Chaparral is a subsidiary of Marine Products Corporation, publicly traded on the New York Stock Exchange under the symbol MPX and has a significant dealer network in the nation's top recreational boating states. It serves all major boating markets through its extensive dealer network, composed of approximately 147 independent dealers, as well as 85 dealers outside the United States. The Company's sales operations include an independent field sales force that is responsible for dealer relationships. This sales force is coordinated by Chaparral's national sales office.

Robalo

A premium quality line of outboard powered bay boat, center console, dual console and walkaround cabin style sport fishing boats.

Marine Products purchased Robalo, a leading sport fishing boat brand, in June 2001 as a demonstration of its commitment to expand its portfolio of quality marine craft. Robalo Marine was founded in 1969, and its first boat was a 19’ center console salt-water fishing boat, among the first of this type of boat to have an “unsinkable” hull.

Today, Robalo manufacturing is located in Valdosta, Georgia. Valdosta is just a 30-minute drive from the Chaparral world headquarters, so Robalo benefits from a close proximity to the operating management of Marine Products while developing its own brand identity and integrating into Marine Products.

Robalo produced and sold its first two models as part of Marine Products during the fourth quarter of 2001. The Robalo sales force is selectively cultivating a dealer network, and has approximately 47 dealers. Robalo is currently offering 15 different models from 18 to 30 feet.

Chaparral 310 Signature

My Perspective

Marine Products Corp is a small company with few followers so this isn't something that's going to dominate my portfolio. On the other hand, it should be a great addition if bought at the right price. Today this company may seem like just a little on the expensive side but with its fundamentals rising as fast as it seems, today's price could seem cheap in a very short time.

Like I said in the opening paragraph, autumn may not be the best time to buy boat stocks because most sales occur in the spring, so there's no hurry to pick up shares in this company. But since the markets always look forward, it won't be too many months before everyone will start looking at companies like Marine Products.

My biggest concerns are the P/E ratio over 20, the PEG over 2 and the fact that estimates are based on only one analyst. These ratios are higher than I normally like to see when I invest in a company. On the other hand, what I like to see is no debt and great liability coverage, which are exceptional for this company. Finally a relatively high beta gives me hope that I can buy this company on a decent pullback if that occurs as buyers start to get interested in winter sports.

I intend to put in bids near $8.50 per share and see if I can catch this stock on any pullback. I realize there's a tender offer for up to 3.2 million shares at $9 per share so I'm not sure if the stock will fall to $8.50 per share before 1 Nov when the tender offer expires. So, if I don't get a hit at that price in the next few weeks I'll raise that bid up closer to $9 per share which is what management thinks it's worth. I think this company may have a very nice future.

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Tractor Supply Company

9/22/2016

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Two months ago Tractor Supply announced lower guidance for the third quarter and full year and the stock fell. In the interim the company has only met, and not exceeded, this lowered guidance. More recently analysts have reacted with a series of downgrades pushing the stock even lower. Today the stock price sits at just two-thirds the value it had just four months ago.

I believe Tractor Supply is a well run company and is facing a tough economic climate. But management is smart and economic conditions often change over time. And while it may take a few quarters for this to work itself out, it's also providing a very nice opportunity to add to my position in Tractor Supply at (relatively) bargain basement prices.

Tractor Supply Company operates rural lifestyle retail stores in the United States. It offers a selection of merchandise, including equine, livestock, pet, and small animal products necessary for their health, care, growth, and containment; hardware, truck, towing, and tool products; seasonal products, such as heating products, lawn and garden items, power equipment, gifts, and toys; work/recreational clothing and footwear; and maintenance products for agricultural and rural use. As of December 26, 2015, the company operated 1,488 stores in 49 states. It operates its retail stores under the Tractor Supply Company, Del's Feed & Farm Supply, and HomeTown Pet names. The company also operates an e-commerce Website at TractorSupply.com. It sells its products to recreational farmers, ranchers, and others, as well as tradesmen and small businesses. Tractor Supply Company was founded in 1938 and is based in Brentwood, Tennessee.
(Summary) (Company) (Chart)

20 September 2016
Price $67.58
1yr Target $88.87
Analysts 23
Dividend $0.96
Payout Ratio 30.67%

1yr Cap Gain 31.50%
Yield 1.42%
1yr Tot Return 32.92%

P/E 21.60
PEG 1.53
Beta 1.23

EPS (ttm) $3.13
EPS next yr $3.65
Forward P/E 18.54
EPS next 5yr 14.10%
1yr Price Support $51.46

Market Cap $9.15 Bil
Revenues $6.44 Bil
Earnings $423.10 Mil
Profit Margin 6.56%

Quick Ratio 0.30
Current Ratio 2.20
Debt/Equity 0.15

1yr RevGR 9.01%
3yr RevGR 10.00%
5yr RevGR 11.34%

1yr EarnGR 12.78%
3yr EarnGR 16.26%
5yr EarnGR 21.67%

1yr DivGR 25.00%
3yr DivGR 25.70%
5yr DivGR 41.70%

ROA 17.00%
ROE 30.30%

My Perspective

I own a few shares of Tractor Supply because I like the company and I have a lot of confidence in management based upon years of increasing revenues, earnings and dividends. I don't think that's going to change in the future. Now we can discuss the rate of increases and how that's affected by the overall economy, but in the end I think the fundamental will continue to improve in the years ahead. I believe any pullback in the price is an opportunity to load up on the shares while they're on sale. And that's exactly what I plan to do. I believe any slowing of growth rates will be only temporary and that buying shares at this level will make me look like an intelligent investor a year from now.

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Home Depot and Lowe's

9/19/2016

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Two giants of the home improvement industry are Home Depot and Lowe's, and both of them have been stellar performers and excellent dividend growers for a significant number of years. Either one would be a great addition to any portfolio, especially when they're on sale. The last two months have seen both of these companies fall from their recent highs and are now pushing on their lower Bollinger Bands. Other indicators show me that these companies are also in oversold territory. For me, that's a signal to load up on my Home Depot and Lowe's positions. Over the years I've learned that this is often a good idea.

The Home Depot operates as a home improvement retailer. It operates The Home Depot stores that sell various building materials, home improvement products, and lawn and garden products, as well as provide installation, home maintenance, and professional service programs to do-it-yourself, do-it-for-me (DIFM), and professional customers. The company offers installation programs that include flooring, cabinets, countertops, water heaters, and sheds; and professional installation in various categories sold through its in-home sales programs, such as roofing, siding, windows, cabinet refacing, furnaces, and central air systems, as well as acts as a contractor to provide installation services to its DIFM customers through third-party installers. It primarily serves home owners; renovators, remodelers, general contractors, repairmen, installers, small business owners, and tradesmen. The company also sells its products through online. As of December 31, 2015, it had 2,274 stores, including 1,977 in the United States, 182 in Canada, and 115 in Mexico. The Home Depot, Inc. was founded in 1978 and is based in Atlanta, Georgia.
(Summary) (Company) (Chart)

Lowe's Companies operates as a home improvement retailer. It offers products for home maintenance, repair, remodeling, and decorating. The company provides home improvement products in various categories, such as lumber and building materials, tools and hardware, appliances, fashion fixtures, rough plumbing and electrical, lawn and garden, seasonal living, paint, flooring, millwork, kitchens, outdoor power equipment, and home fashions. It also offers installation services through independent contractors in various product categories; extended protection plans; and in-warranty and out-of-warranty repair services. The company sells its national brand-name merchandise and private branded products to homeowners, renters, and professional customers; and retail customers comprising individual homeowners and renters. As of January 29, 2016, it operated 1,857 home improvement and hardware stores in the United States, Canada, and Mexico. The company also sells its products through online sites comprising Lowes.com, Lowes.ca, and ATGstores.com, as well as through mobile applications. Lowe's Companies, Inc. was founded in 1946 and is based in Mooresville, North Carolina.
(Summary) (Company) (Chart)

18 September 2016
Price $126.11
1yr Target $150.55
Analysts 25
Dividend $2.76
Payout Ratio 46.54%

1yr Cap Gain 19.37%
Yield 2.18%
1yr Tot Return 21.55%

P/E 21.27
PEG 1.52
Beta 0.99

EPS (ttm) $5.93
EPS next yr $7.18
Forward P/E 17.57
EPS next 5yr 13.95%
1yr Price Support $100.16

Market Cap $156.87 Bil
Revenues $92.03 Bil
Earnings $7.44 Bil
Profit Margin 8.08%

Quick Ratio 0.50
Current Ratio 1.30
Debt/Equity 3.15

1yr RevGR 6.42%
3yr RevGR 5.73%
5yr RevGR 5.41%

1yr EarnGR 15.92%
3yr EarnGR 21.84%
5yr EarnGR 22.12%

1yr DivGR 23.00%
3yr DivGR 24.70%
5yr DivGR 20.73%

ROA 17.00%
ROE 110.50%

18 September 2016
Price $70.95
1yr Target $87.65
Analysts 23
Dividend $1.40
Payout Ratio 44.87%

1yr Cap Gain 23.53%
Yield 1.97%
1yr Tot Return 25.50%

P/E 22.73
PEG 1.39
Beta 1.12

EPS (ttm) $3.12
EPS next yr $4.72
Forward P/E 15.04
EPS next 5yr 16.37%
1yr Price Support $77.26

Market Cap $62.37 Bil
Revenues $61.09 Bil
Earnings $2.79 Mil
Profit Margin 4.56%

Quick Ratio 0.20
Current Ratio 1.00
Debt/Equity 2.29

1yr RevGR 5.07%
3yr RevGR 5.29%
5yr RevGR 3.88%

1yr EarnGR 0.73%
3yr EarnGR 17.14%
5yr EarnGR 13.96%

1yr DivGR 22.98%
3yr DivGR 19.73%
5yr DivGR 20.56%

ROA 8.00%
ROE 37.00%

My Perspective

Trying to decide which company to buy shares in is probably a futile exercise. And luckily I don't have to make that choice since I own shares in both companies. My path forward is to continue to use dividend reinvestment to add to my positions as well as open market buys as funds become available. But all in all, these have been great investments and I expect they will continue to be great investments in the years ahead.

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Snap-On Tools

9/14/2016

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Some of the most highly regarded tools manufactured today are made by Snap=On Incorporated. They are also some of the most expensive tools made, and they're often the most desired tools on the worksite. The company has also been increasing it's dividend these last few years as revenue and earnings continue to steadily increase.

Snap-On Dividend Chart

Snap-on Incorporated manufactures and markets tools, equipment, diagnostics, and repair information and systems solutions for professional users worldwide. The company operates through Commercial & Industrial Group, Snap-on Tools Group, Repair Systems & Information Group, and Financial Services segments. It offers hand tools, such as wrenches, sockets, ratchet wrenches, pliers, screwdrivers, punches and chisels, saws and cutting tools, pruning tools, torque measuring instruments, and other products; power tools, such as cordless, pneumatic, hydraulic, and corded tools comprising impact wrenches, ratchets, screwdrivers, drills, sanders, grinders, and related products; and tool storage products comprising tool chests, roll cabinets, and other products. The company also provides handheld and PC-based diagnostic products, service and repair information products, diagnostic software solutions, electronic parts catalogs, business management systems and services, point-of-sale systems, integrated systems for vehicle service shops, original equipment manufacturer purchasing facilitation services, and warranty management systems and analytics. In addition, it offers solutions for diagnosis and service of vehicles and industrial equipment for various products, such as wheel alignment equipment, wheel balancers, tire changers, vehicle lifts, test lane systems, collision repair equipment, air conditioning service equipment, brake service equipment, fluid exchange equipment, transmission troubleshooting equipment, safety testing equipment, battery chargers, and hoists. Further, the company provides financing programs to facilitate the sales of its products. It serves aviation and aerospace, agriculture, construction, government and military, mining, natural resources, power generation, and technical education industries, as well as vehicle dealerships and repair centers. The company was founded in 1920 and is headquartered in Kenosha, Wisconsin.
(Summary) (Company) (Chart)

12 September 2016
Price $147.78
1yr Target $174.67
Analysts 6
Dividend $2.44
Payout Ratio 27.98%

1yr Cap Gain 18.19%
Yield 1.65%
1yr Tot Return 19.84%

P/E 16.95
PEG 1.70
Beta 1.23

EPS (ttm) $8.72
EPS next yr $9.96
Forward P/E 14.84
EPS next 5yr 10.00%
1yr Price Support $99.60

Market Cap $8.80 Bil
Revenues $3.64 Bil
Earnings $516.60 Mil
Profit Margin 14.17%

Quick Ratio 1.60
Current Ratio 2.20
Debt/Equity 0.34

1yr RevGR 2.89%
3yr RevGR 5.00%
5yr RevGR 6.03%

1yr EarnGR 13.44%
3yr EarnGR 15.74%
5yr EarnGR 20.48%

1yr DivGR 23.24%
3yr DivGR 16.37%
5yr DivGR 12.95%

ROA 11.60%
ROE 20.90%

Background

Snap-on was founded as the Snap-on Wrench Company in Milwaukee, Wisconsin in 1920 by Joseph Johnson and William Seidemann. As a new socket wrench manufacturing company, the business manufactured and marketed ten sockets that would "snap on" to five interchangeable handles. Their slogan was "15 do the job of 50"

After World War II, Palmer advertised for a military officer to organize and develop a larger sales force for the expected post-war sales boom. Newton Tarble was hired, and came up with the idea of developing routes for company dealers to see mechanics on a weekly basis. Eventually these salesmen became independent businessmen and authorized dealers using larger walk-in vans to carry a growing product line. Thus, Snap-on tools are sold only by dealers and none are sold in retail stores.

The quality of the company's tools are highly regarded but their prices are also among the very highest. Snap-on currently operates plants in various states and cities such as Milwaukee, Wisconsin and Elizabethton, Tennessee, which manufacture hand tools. Pneumatic tools are currently manufactured in Murphy, North Carolina.

In 1975, Snap-on opened a manufacturing plant in Johnson City, Tennessee and closed the plant 32 years later in 2007. The Murphy, North Carolina plant was named as one of the top 10 plants in North America by Industry Week.

In 1999, Snap-on acquired Bahco, a Swedish hand tool brand. Bahco hand tools are designed and manufactured by SNA Europe, the European manufacturing subsidiary of Snap-on Incorporated.

Sales Philosophy and Product Categories

Snap-on has always maintained the philosophy that the customer's time was too valuable to spend going shopping for tools. Snap-on Franchisees visit their customers in their place of work weekly, in a van loaded with items for purchase. Purchase options range from Collect on Delivery, to a revolving account in which a customer pays a set portion of his balance weekly, to an extended credit program sponsored by Snap-on Credit for large purchases.

Recently, Snap-on has made other advances in their product showcasing. Newest among these are the Snap-on TechKnow Express, showcasing everything Snap-on has to offer in the realm of Diagnostic equipment, and the Rock 'n Roll Cab Express, a truck with various types of tool storage showing customization options, including units larger than what would fit on a standard Franchisee van. These trucks are typically assigned to a particular region and work within that region with individual Franchisees.

Snap-on produces hand, air, and electric tools designed for professional use in all facets of the transportation industry. Automotive, heavy-duty, equipment, marine, aviation, and railroad industries all are customers of Snap-on. Snap-on also distributes hand tools and power tools under the brand name Blue-Point, as an entry-level or price-conscious offering.

Snap-on also manufactures tool storage cabinets in its Algona, Iowa plant. Snap-on produces hand-held electronic diagnostic tools for the on-board computer systems used in most modern cars and heavy-duty vehicles, as well as automotive emissions control diagnostics equipment in its San Jose, CA diagnostic facility. Snap-on diagnostic products are sold in Europe and Brazil under the name Sun.

My Perspective

I like this company and I believe it's currently priced at about where it should be when considering its inherent fair value. But it could be considered priced a little too high based on its forward earnings growth estimates. Therefore I would be looking at starting a position in this company at a price anywhere below $140 per share. That price level would provide me with some insurance against a P/E ratio that could find it self falling toward its long term estimated earnings growth rate of just 10%.

I also like the fact that the company has doubled their dividend over the last five years. With a payout ratio of less than 30%, the dividend could easily increase at a rate faster that the company's earnings increases without jeopardizing the company's financials. And I like increasing dividends a lot!

0 Comments

Kroger

9/9/2016

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Kroger is being pushed down as investors worry about deflation in the financial markets and price pressures in the agricultural markets. But the company has seen this before and has a history of growing and expanding despite these external pressures that have affected other companies over the years. The market may just be in the process of providing me with another opportunity to buy an excellent company that's growing its revenue, earnings and dividend at a bargain price.

The Kroger Co. operates as a retailer in the United States. It also manufactures and processes food for sale in its supermarkets. The company operates retail food and drug stores, multi-department stores, jewelry stores, and convenience stores. Its combination food and drug stores offer natural food and organic sections, pharmacies, general merchandise, pet centers, fresh seafood, and organic produce; multi-department stores provide general merchandise items, such as apparel, home fashion and furnishings, outdoor living, electronics, automotive products, toys, and fine jewelry; and price impact warehouse stores offer grocery, and health and beauty care items, as well as meat, dairy, baked goods, and fresh produce items. The company's marketplace stores comprise full-service grocery, pharmacy, health and beauty departments, and perishable goods, as well as general merchandise, including apparel, home goods, and toys. It operates under the banner brands, such as Kroger, Ralphs, Fred Meyer, King Soopers, etc., as well as Simple Truth and Simple Truth Organic brands. As of January 30, 2016, the company operated 2,778 retail food stores, including 1,387 fuel centers; 784 convenience stores; and 323 fine jewelry stores and an online retail store, as well as franchised 78 convenience stores. The Kroger Co. was founded in 1883 and is headquartered in Cincinnati, Ohio.
(Summary) (Company) (Chart)

7 September 2016
Price $31.32
1yr Target $39.29
Analysts 21
Dividend $0.46
Payout Ratio 21.49%

1yr Cap Gain 25.44%
Yield 1.46%
1yr Tot Return 26.90%

P/E 14.66
PEG 1.59
Beta 0.69

EPS (ttm) $2.14
EPS next yr $2.41
Forward P/E 13.02
EPS next 5yr 9.23%
1yr Price Support $22.24

Market Cap $29.88 Bil
Revenues $111.38 Bil
Earnings $2.08 Bil
Profit Margin 1.86%

Quick Ratio 0.20
Current Ratio 0.70
Debt/Equity 1.93

1yr RevGR 1.25%
3yr RevGR 4.31%
5yr RevGR 6.00%

1yr EarnGR 19.76%
3yr EarnGR 13.99%
5yr EarnGR 18.81%

1yr DivGR 16.57%
3yr DivGR 15.30%
5yr DivGR 15.32%

ROA 6.40%
ROE 32.80%

Corporate Profile.

The Kroger Co. is headquartered in Cincinnati, OH, and is one of the world's largest food retailers with fiscal 2015 sales of $109.8 billion. Kroger spans a large portion of the US with store formats that include grocery and multi-department stores, convenience stores and jewelry stores. They operate under two dozen banners with their customer base is becoming increasingly diverse in terms of ethnicity, income levels, household mix and purchasing patterns. Kroger's variety of store formats is one of the key strengths that differentiates the company from their competitors.

Kroger has grown their supermarket sales for an unparalleled 49 consecutive quarters. They have been able to deliver this level of consistent performance because of their focus on their customers needs. in addition, Kroger has increased its market share for 11 consecutive years.

Every day, the Kroger Family of Companies serves eight and a half million customers in 2,778 retail food stores under a variety of local banner names in 35 states and the District of Columbia. Kroger also operates an "order online and pick up at the store" service ("ClickList") in addition to their 2,231 pharmacies, 784 convenience stores, 323 fine jewelry stores, 1,387 supermarket fuel centers and 38 food production plants.

Company Chains

The Kroger Company has a broad operational structure with many retail outlets under the Kroger corporate structure. Below is a list of the food and drug stores, multi-department stores, price impact stores, marketplace stores, jewelry stores, convenience stores, and convenient care clinics that comprise the Kroger Company.

Combination food and drug stores

Baker's Supermarkets (Omaha, Nebraska)
City Market (Colorado, Wyoming, Utah, New Mexico)
Dillons Food Stores (Kansas, Missouri)
Fry's Food & Drug (Arizona)
Gerbes Super Markets (Central Missouri)
Harris Teeter (North Carolina, South Carolina, Virginia, Georgia, Florida, Maryland, Delaware, and the District of Columbia)
Jay C (Southern Indiana)
King Soopers (Colorado, Wyoming)
Kroger (Alabama, Arkansas, Delaware, Georgia, Indiana, Illinois, Kentucky, Louisiana, Maryland, Michigan, Mississippi, Missouri, North Carolina, Ohio, Oklahoma, South Carolina, Tennessee, Texas, Virginia, West Virginia)
Owen's (Northeastern Indiana)
Pay Less Super Markets (Central Indiana)
QFC (Oregon, Washington State)
Ralphs (Southern California)
Roundy's (Pick 'n Save, Mariano's Fresh Market, Metro Market, Copps) (Wisconsin, Illinois )
Scott's (Fort Wayne, Indiana)
Smith's (Arizona, Idaho, Montana, Nevada, New Mexico, Utah, Wyoming)

Multi-department stores

Fred Meyer (Alaska, Idaho, Oregon, Washington)

Price impact stores

Food 4 Less (Southern California; Chicago, Illinois; NW Indiana) (Food 4 Less stores elsewhere are owned by other companies)
Foods Co. (Northern California)
Ruler Foods (Indiana, Illinois, Ohio, Kentucky, Missouri, Tennessee)

Marketplace stores

Dillons Marketplace
Fry's Marketplace
King Soopers Marketplace
Kroger Marketplace
Smith's Marketplace

Jewelry stores

Fred Meyer Jewelers (Texas, various others)
Barclay Jewelers
Fox's Jewelers
Littman Jewelers

Convenience stores

Kwik Shop (Iowa, Kansas, Nebraska, Tennessee, Mississippi)
Loaf 'N Jug (Colorado, Montana, Nebraska, North Dakota, South Dakota, Wyoming)
Smith's Express (Utah)
Tom Thumb Food Stores (Alabama, Florida)
Turkey Hill Minit Markets (Pennsylvania, Ohio, Indiana)

Convenient care clinic

The Little Clinic (Ohio, Kentucky, Tennessee, Georgia, Indiana, Arizona, Mississippi, Colorado, Kansas, Virginia)

My Path Forward

Kroger hit a high of $42 per share at the end of last year but has been falling ever since. Today it sits just above $31 per share. I see this as possibly one of those great opportunities to start a position with a premier company at a bargain price. As I look at the chart, I can see that strong support surfaced last year just below $30 per share so this would be the obvious place to set as a buy point. And that's what I expect to do over the next few days. For those who would prefer an alternative strategy, selling puts at that level would allow the investor to make money on the position even if the stock didn't fall to that level. Either tactic is a bullish strategy.

I also expect that as the stock begins to move higher, resistance will surface as the price approaches $42 per share. This is exactly what happened at the end of last year. This level would be a great place to exit the position if it got to that level in less than one year. This would result in a gain of 40%. For those who would prefer an alternative strategy, selling call options at that level to make money while waiting for the stock to rise would also have the benefit of having a built in exit strategy. Both tactics would be a bearish strategy and an excellent exit strategy.

Kroger has demonstrated a consistent record of increasing their revenues, earnings and their dividend over an extended period of time and I find no reason that this will not continue well into the years ahead (as long as people continue to eat!). I believe that Kroger's management team has shown over the years that they can manage almost any difficult situation thrown at it despite on a ever changing economy and successfully grown both internally as well as through acquisitions. As this industry continues to consolidate I believe Kroger will continue to be one of the winners, as it has for well over 100 years.

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Viacom

9/8/2016

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Viacom is a company that's raised it's dividend 700% in the last 13 years but its stock price has gone nowhere for the last year. It now has a dividend yield in excess of 4% and is heading very quickly into oversold territory. It's a nice setup for a long term holder like me. I like to buy companies that have a long history of increasing their dividend, an expectation to do so in the future and are falling out of favor with investors.

In the case of Viacom, there's nervousness among the content creators because of the cord cutters. There's nervousness in Viacom because of the recent flops produced by Paramount Pictures. And then there's the ongoing uncertainty with the corner office.

This is creating an opportunity for investors like me. I think content is king and Viacom is producing a lot of content. I'm currently watching the stock in this company to try to determine where the next bottom is. And what I'm seeing is support for VIAB in the $35-$37 area so that's where I'll put my buy points. At that price I believe I can get an estimated 30% increase on my investment over the next year along with a 4% growing dividend. And that would be a sweet deal.

Viacom, Inc. operates as an entertainment content company in the United States and internationally. The company creates television programs, motion pictures, short-form content, applications, games, consumer products, social media, and other entertainment content. It operates through two segments, Media Networks and Filmed Entertainment. The Media Networks segment provides entertainment content and related branded products for consumers approximately through 250 locally programmed and operated TV channels, including Nickelodeon, Comedy Central, MTV, VH1, SPIKE, BET, CMT, TV Land, Nick at Nite, Nick Jr., Channel 5 (UK), Logo, Nicktoons, TeenNick, Paramount Channel, and others, as well as through online, mobile, and apps. The Filmed Entertainment segment produces, finances, acquires, and distributes motion pictures, television programming, and other entertainment content under the Paramount Pictures, Paramount Vantage, Paramount Classics, Paramount Animation, Insurge Pictures, Nickelodeon Movies, MTV Films, and Paramount Television brands. This segment exhibits motion pictures theatrically through home entertainment, television, and digital licensing and ancillary activities. The company releases its content through download-to-own, download-to-rent, DVDs, Blu-ray discs, transactional video-on-demand, pay television, subscription video-on-demand, basic cable television, free television, and free video-on-demand, as well as airlines and hotels. Viacom, Inc. is headquartered in New York, New York.
(Summary)

Viacom Dividend Chart

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AMC Entertainment

9/5/2016

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Holidays were made for going to the movies and AMC Theatres delivers distinctive and affordable movie-going experiences throughout the United States. They do this by maintaining a significant presence in the top 50 DMAs, including the number one or two market share in each of the top 15 DMAs, which includes New York, Los Angeles, Chicago, Philadelphia, San Francisco, Atlanta and Dallas. The company operates 22 of the 50 highest grossing theatres in the US, including four of the top five.

AMC has propelled industry innovation and continues today by delivering premium sight and sound, enhanced food and beverage and diverse content to an engaged audience in state-of-the-art buildings. And as of March 31, 2016, AMC owned or operated 385 theatres with 5,380 screens located primarily in the United States.

5 September 2016
Price $30.50
1yr Target $34.47
Analysts 15
Dividend $0.80
Payout Ratio 74.07%

1yr Cap Gain 13.01%
Yield 2.62%
1yr Tot Return 15.63%

P/E 28.21
PEG 1.80
Beta ---

EPS (ttm) $1.08
EPS next yr $1.39
Forward P/E 22.02
EPS next 5yr 15.65%
1yr Price Support $21.75

Market Cap $2.97 Bil
Revenues $3.00 Bil
Earnings $106.10 Mil
Profit Margin 3.53%

Quick Ratio 0.40
Current Ratio 0.40
Debt/Equity 1.24

1yr RevGR 9.31%
3yr RevGR ---
5yr RevGR ---

1yr EarnGR 60.60%
3yr EarnGR ---
5yr EarnGR ---

1yr DivGR 33.33%
3yr DivGR ---
5yr DivGR ---

ROA 2.20%
ROE 6.90%

My Perspective

Hollywood has been one of the great success stories in American history and I expect them to continue to make movies and for people to see a night out as dinner and a movie. There are a number of movie theater companies and they're all doing well. They include Regal Entertainment Group, Carmike Cinemas, and Cinemark Holdings as well as numerous mom and pop theaters around the country. I like all of them buy AMC Entertainment has the highest estimated 5 year earnings growth going forward at just over 15%. AMC also has a nice growing dividend, but the historical data only goes back a short way.

I personally find this stock to be a little pricey at $30 per share and would most likely like to buy these shares at or below $28 per share. At that price I'm looking at a forward P/E near 20, which is still high but at least tolerable. That would also increase my one year estimated total return on investment above 25%.

If bought at the right price, this company could bring in an annual total return of nearly 18% per year and that's the kind of total return I like to see. I intend to initiate a position in this company as soon as the stock drops below $28 per share and will continue to buy as long as it stays below that threshold.

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Aaron's Inc

9/2/2016

1 Comment

Rent to own companies make ownership possible for that portion of the population that doesn't have the cash or credit to just go out and buy things. So they turn to rental companies. Aaron's allows those consumers to lease household items with the potential of ownership at the end of the lease. For many this may be their only option.

Aaron's, Inc. operates as a specialty retailer of furniture, consumer electronics, computers, appliances, and household accessories in the United States and Canada. It operates through six segments: Sales and Lease Ownership, Progressive, HomeSmart, DAMI, Franchise, and Manufacturing. The company engages in the lease ownership and retail sale of various products, such as televisions, computers, tablets, mobile phones, living room, dining room and bedroom furniture, mattresses, washers, dryers, and refrigerators. It offers products of various brands, such as Samsung, Frigidaire, Hewlett-Packard, LG, Whirlpool, Simmons, Philips, JVC, Sharp, and Magnavox. As of February 29, 2016, the company operated approximately 2,100 company-operated and franchised stores in 47 states and Canada; and provided lease-purchase solutions through approximately 16,000 retail locations in 46 states, as well as various second-look financing programs through approximately 1,400 locations. Aaron's, Inc. was founded in 1955 and is based in Atlanta, Georgia.
(Summary) (Company) (Chart)

2 September 2016
Price $24.47
1yr Target $32.00
Analysts 5
Dividend $0.10
Payout Ratio 5.46%

1yr Cap Gain 30.77%
Yield 0.40%
1yr Tot Return 31.17%

P/E 13.34
PEG 1.11
Beta 0.27

EPS (ttm) $1.83
EPS next yr $2.46
Forward P/E 9.94
EPS next 5yr 12.00%
1yr Price Support $29.52

Market Cap $1.81 Bil
Revenues $3.23 Bil
Earnings $134.10 Mil
Profit Margin 4.14%

Quick Ratio ---
Current Ratio ---
Debt/Equity 0.00

1yr RevGR 17.95%
3yr RevGR 12.71%
5yr RevGR 11.12%

1yr EarnGR 72.22%
3yr EarnGR -6.09%
5yr EarnGR 5.25%

1yr DivGR 9.30%
3yr DivGR 14.72%
5yr DivGR 13.91%

ROA 5.30%
ROE 9.60%

General Development of Business

Established in 1955 and incorporated in 1962 as a Georgia corporation, Aaron’s, Inc., is a leading specialty retailer of furniture, consumer electronics, computers, appliances and household accessories. Our store-based operations engage in the lease ownership and retail sale of a wide variety of products such as televisions, computers, tablets, mobile phones, living room, dining room and bedroom furniture, mattresses, washers, dryers and refrigerators. Our stores carry well-known brands such as Samsung®, Frigidaire®, Hewlett-Packard®, LG®, Whirlpool®, Simmons®, Philips®, JVC®, Sharp® and Magnavox®.

On April 14, 2014, the Company acquired a 100% ownership interest in Progressive Finance Holdings, LLC ("Progressive"), a leading virtual lease-to-own company. Through our Progressive business, we offer lease-purchase solutions to the customers of traditional retailers on a variety of products, including furniture and bedding, mobile phones, consumer electronics, appliances and jewelry. Progressive provides lease-purchase solutions in 46 states.

On October 15, 2015, the Company acquired a 100% ownership interest in Dent-A-Med, Inc., d/b/a the HELPcard®, (collectively, "DAMI") which is based in Springdale, Arkansas. DAMI partners with merchants to provide a variety of revolving credit products originated through a federally insured bank to customers that may not qualify for traditional prime lending. These are commonly referred to as "second-look" credit products. Together with Progressive, DAMI allows the Company to provide retail and merchant partners one source for financing and leasing transactions with below-prime customers. The acquisition of DAMI is expected to drive long-term incremental revenue and earnings growth at Progressive, and DAMI will benefit from Progressive's proprietary technology, infrastructure and financial capacity.

As of December 31, 2015, we had 2,039 stores, comprised of 1,305 Company-operated stores in 28 states, the District of Columbia and Canada, and 734 independently-owned franchised stores in 47 states and Canada. Included in the Company-operated store counts are 1,223 Aaron’s Sales & Lease Ownership stores (our monthly and semi-monthly pay concept) and 82 HomeSmart stores (our weekly pay concept).

We own or have rights to various trademarks and trade names used in our business including Aaron’s, Aaron’s Sales & Lease Ownership, Progressive, HomeSmart, Dent-A-Med, the HELPcard® and Woodhaven Furniture Industries. We intend to file for additional trade name and trademark protection when appropriate.

Business Segments

As of December 31, 2015, the Company had six operating and reportable segments: Sales and Lease Ownership, Progressive, HomeSmart, DAMI, Franchise and Manufacturing. The results of DAMI and Progressive have been included in the Company’s consolidated results and presented as reportable segments from their October 15, 2015 and April 14, 2014 acquisition dates, respectively.

Our Company-operated stores and franchise operations are located in the United States and Canada. Additional information on our six reportable segments may be found in (i) Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and (ii) Item 8. Financial Statements and Supplementary Data.

Sales & Lease Ownership

Our Aaron's Sales & Lease Ownership operation was established in 1987 and employs a monthly and semi-monthly payment model to provide durable household goods to lower to middle income consumers. Its customer base is comprised primarily of customers with limited access to traditional credit sources such as bank financing, installment credit or credit cards. Customers of our Aaron’s Sales & Lease Ownership division take advantage of our services to acquire consumer goods they might not otherwise be able to without incurring additional debt or long-term obligations.

We have developed a distinctive concept for our sales and lease ownership stores including specific merchandising, store layout, pricing and agreement terms all designed to appeal to our target consumer market. We believe these features create a store and a sales and lease ownership concept that is distinct from the operations of the lease-to-own industry generally and from consumer electronics and home furnishings retailers who finance merchandise.

The typical Aaron’s Sales & Lease Ownership store layout is a combination showroom and warehouse comprising 6,000 to 8,000 square feet, with an average of approximately 7,200 square feet. We select locations for new Aaron’s Sales & Lease Ownership stores by focusing on neighborhood shopping centers with good access that are located in established working class communities. In addition to inline space, we also lease and own several free standing buildings in certain markets. We typically locate the stores in centers with retailers who have similar customer demographics.

Each Aaron’s Sales & Lease Ownership store usually maintains at least two trucks for delivery, service and return of product. We generally offer same or next day delivery for addresses located within approximately ten miles of the store. Our stores provide a broad selection of brand name electronics, computers, appliances and furniture, including furniture manufactured by our Woodhaven Furniture Industries division.

We believe that our Aaron’s Sales & Lease Ownership stores offer prices that are lower than the prices for similar items offered by traditional lease-to-own operators, and substantially equivalent to the "all-in" contract price of similar items offered by retailers who finance merchandise. Approximately 97% of our Aaron's Sales & Lease Ownership agreements have monthly terms and the remaining 3% are semi-monthly. By comparison, weekly agreements are the industry standard.

We may re-lease or sell merchandise that customers return to us prior to the expiration of their agreements. We may also offer up-front purchase options at prices we believe are competitive. At December 31, 2015, we had 1,223 Company-operated Aaron’s Sales & Lease Ownership stores in 28 states, the District of Columbia and Canada.

Progressive

Established in 1999, Progressive is a leader in the expanding virtual lease-to-own market. Progressive partners with retailers, primarily in the furniture and bedding, mobile phones, consumer electronics, appliances and jewelry industries, to offer a lease-purchase option for customers to acquire goods they might not otherwise have been able to obtain. We serve customers who are credit challenged and are therefore unlikely to have access to traditional credit-based financing options. We offer a technology-based application and approval process that does not require Progressive employees to be staffed in a store. Once a customer is approved, Progressive purchases the merchandise from the retailer and enters into a lease-to-own agreement with the customer. The contract provides early-buyout options or ownership after a contractual number of renewals. Progressive has retail partners in 46 states and operates under state- specific regulations in those states.

HomeSmart

Our HomeSmart operation began in 2010 and was developed to serve customers who prefer the flexibility of weekly payments and renewals. The consumer goods we provide in our HomeSmart division are substantially similar to those available in our Aaron’s Sales & Lease Ownership stores.

The typical HomeSmart store layout is a combination showroom and warehouse of 4,000 to 6,000 square feet, with an average of approximately 5,000 square feet. Store site selection, delivery capabilities and lease merchandise product mix are generally similar to those described above for our Aaron’s Sales & Lease Ownership stores.

We believe that our HomeSmart stores offer prices that are lower than the prices for similar items offered by traditional weekly lease-to-own operators. Approximately 71% of our HomeSmart agreements have weekly terms, 4% are semi-monthly and the remaining 25% are monthly. We may also offer an up- front purchase option at prices we believe are competitive. At December 31, 2015, we had 82 Company-operated HomeSmart stores in 11 states.

DAMI

DAMI was founded in 1983 and primarily serves customers that may not qualify for traditional prime lending who desire to purchase goods and services from participating merchants. DAMI, which operates as a wholly-owned subsidiary of Progressive, offers customized programs, with services that include revolving loans, private label cards and access to a unique processing platform. DAMI’s current network of merchants includes medical markets, beds and fitness equipment. The Company believes the DAMI product offerings are complementary to those of Progressive and expects to expand the markets and merchants that DAMI serves.

We extend or decline credit to an applicant through our bank partner based upon the customer's credit rating. Our bank partner originates the loan by providing financing to the merchant at the point of sale and acquiring the receivable at a discount from the face value, which represents a pre-negotiated fee between DAMI and the merchant. DAMI then acquires the receivable from the bank.

Qualifying customers receive a credit card to finance their initial purchase and to use in subsequent purchases at the merchant or other participating merchants for an initial two year period, which we will renew if the cardholder remains in good standing. The customer is required to make periodic minimum payments and pay certain annual and other periodic fees.

Franchise

We franchise our Aaron’s Sales & Lease Ownership and HomeSmart stores in markets where we have no immediate plans to enter. Our franchise program adds value to our Company by allowing us to (i) recognize additional revenues from franchise fees and royalties, (ii) strategically grow without incurring direct capital or other expenses, (iii) lower our average costs of purchasing, manufacturing and advertising through economies of scale and (iv) increase customer recognition of our brands.

Franchisees are approved on the basis of the applicant’s business background and financial resources. We enter into agreements with our franchisees to govern the opening and operations of franchised stores. Under our standard agreement, we receive a franchise fee from $15,000 to $50,000 per store depending upon market size. Our standard agreement is for a term of ten years, with one ten-year renewal option. Franchisees are also obligated to remit to us royalty payments of 5% or 6% of the weekly cash revenue collections from their franchised stores. Most franchisees are involved in the day-to-day operations of their stores.

Because of the importance of location to our store strategy, we assist each franchisee in selecting the proper site for each store. We typically will visit the intended market and provide guidance to the franchisee through the site selection process. Once the franchisee selects a site, we provide support in designing the floor plan, including the proper layout of the showroom and warehouse. In addition, we assist the franchisee in the design and decor of the showroom to ensure consistency with our requirements. We also lease the exterior signage to the franchisee and provide support with respect to pre-opening advertising, initial inventory and delivery vehicles.

Qualifying franchisees may take part in a financing arrangement we have established with several financial institutions to assist the franchisee in establishing and operating their store(s). Although an inventory financing plan is the primary component of the financing program, we have also arranged, in certain circumstances, for the franchisee to receive a revolving credit line, allowing them to expand operations. We provide guarantees for amounts outstanding under this franchise financing program.

All franchisees are required to complete a comprehensive training program and to operate their franchised sales and lease ownership stores in compliance with our policies, standards and specifications. Additionally, each franchise is required to represent and warrant its compliance with all applicable federal, state and/or local laws, regulations and ordinances with respect to its business operations. Although franchisees are not generally required to purchase their lease merchandise from our fulfillment centers, many do so in order to take advantage of Company-sponsored financing, bulk purchasing discounts and favorable delivery terms.

Our internal audit department conducts annual financial reviews of each franchisee, as well as annual operational audits of each franchised store. In addition, our proprietary management information system links each Company and franchised store to our corporate headquarters.

Manufacturing

Woodhaven Furniture Industries, our manufacturing division, was established in 1982, and we believe it makes us the largest major furniture lease-to-own company in the United States that manufactures its own furniture. Integrated manufacturing enables us to control critical features such as the quality, cost, delivery, styling, durability and quantity of our furniture products, and we believe this provides an integration advantage over our competitors. Substantially all produced items continue to be leased or sold through Company-operated or franchised stores.

Our Woodhaven Furniture Industries division produces upholstered living-room furniture (including contemporary sofas, chairs and modular sofa and ottoman collections in a variety of natural and synthetic fabrics) and bedding (including standard sizes of mattresses and box springs). The furniture designed and produced by this division incorporates features that we believe result in reduced production costs, enhanced durability and improved shipping processes all relative to furniture we would otherwise purchase from third parties. These features include (i) standardized components, (ii) reduced number of parts and features susceptible to wear or damage, (iii) more resilient foam, (iv) durable fabrics and sturdy frames which translate to longer life and higher residual value and (v) devices that allow sofas to stand on end for easier and more efficient transport. The division also provides replacement covers for all styles and fabrics of its upholstered furniture, as well as other parts, for use in reconditioning leased furniture that has been returned.

The division consists of five furniture manufacturing plants and nine bedding manufacturing facilities totaling approximately 818,000 square feet of manufacturing capacity.

The Way Forward

Aaron's Inc was created to fulfill the needs of a very special segment of the population who wish to rent furniture and/or electronics with the possibility of ownership at some time in the future (usually 12 months). Over time they've gotten pretty good at conducting this business, as evidenced by their fundamentals. With a future EPS growth rate of 12%, a current P/E ratio of 13 and a PEG of 1.11, this is the kind of company that fits well into my investing style.

I expect to start a position in this company in the near future. Ideally I'd like to buy these shares at a price of $22 per share but realistically I'll buy shares in this company anywhere below $24 per share. My expectation would be that the stock would rise to at least $30 per share over the next year.

While the dividend is growing at about 10% per year and the payout ratio is so low that increases are most assured, the yield is currently too low to be a reason to buy these shares.

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