Update On My Value Investing Book, Discount For You Loyal Readers, Company Research, Another Baby Girl, and Dole Shareholders Getting Screwed.

I have been spending the bulk of my time lately getting ready to move, getting ready for another baby girl coming in late October, and writing my book.

We are staying in the same area just getting a bigger house to accommodate our growing family but packing and doing house related things to get ready for closing on both of our houses on the same day later in June, yikes, has been taking up the majority of my time in recent weeks.  Excited but also cannot wait until we are moved and settled in so things can start slowing down again and I can start working on me and my brothers business and researching companies more.  I have been researching companies very slowly but up to this point I am finding everything to still be overvalued.  The search continues though and I hope to pick up steam again after I move and get the book finished.

I am done writing my book and am now onto the editing and revision stage.  So far I have gone through the introduction and six chapters and am getting very excited.  While I was writing the book I was just trying to get the main transcript done without concentrating much on how good it actually was.  Now that I am able to read through the transcript as I am editing and revising it I am getting very excited because I think I will be able to help a lot of people become better investors faster and I cannot wait to release it to everyone.  I hope to have most of the editing and revising of the book done by early July and hope to release the book sometime in the mid October to mid November time frame.  I also plan to release a chapter or two online before the book comes out as well.  Of course if I get picked up by a publisher these things will likely change but if I self publish the book on places like Kindle and others than that is the time frame I am shooting for.

As a thank you to the loyal readers of this blog, my followers on Twitter and Seeking Alpha, and my Facebook friends I also wanted to let you know that if you follow me on this blog, Twitter, Facebook, or Seeking Alpha that you will be getting a 25% discount off of each package I am going to offer for my book.  The same discount is going to apply to anyone who mentions this blog or the upcoming book on Twitter, Facebook, or Reddit as well.  If you want a discount when the book comes out make sure to # or @ me on Twitter, get my attention on Facebook, or email with the link where you mentioned this blog or the upcoming book as I will start to keep a list of everyone who has helped me promote this book and who has supported me while I was just getting started.  I also plan to offer an even bigger discount or prize of some kind for the person or people who help promote the book the most but have not come up with a solid idea for that yet.  Again this is all dependant on what a publisher would want to do if it comes to that but this is what I want to do.

I also want to let everyone know that we will be welcoming our second baby girl to this blog in late October whose name will be Kailani.  My family is one of the main reasons I have decided to write a book because I would like to find a way to start making some money from my investment writing so for every book package you buy.  Every book you buy or help promote will help support my family and keep continued free content on this blog, and it will be immensely appreciated.  I would like to keep most everything on this blog free except for the book and some other premium content I have planned and any help you can offer would help support that.

Yesterday news came out that the majority owner of Dole, Mr. Murdock, was attempting to take Dole private again at $12 a share.  Dole came public at a price of $12.50 a share a few years ago.  After some of the things that Dole management has done in the past few weeks from saying their land suddenly wasn’t worth as much money, to saying they were going to do a buyback, then a few days later not doing a buyback, to this low ball buy-out offer I am very glad that I got out of Dole when I did.  I figured that something fishy was going on when they said that some of their land suddenly wasn’t worth as much money as they thought and had a conversation with one of my followers on Seeking Alpha about how something funny was going on and how management might be trying to lower the price of the stock so they could take it private again.  Unfortunately it appears that I was right because by my conservative estimates Dole is worth somewhere between $15 and $22 a share.  If Dole management is able to pull this off and only take the company private for $12 a share then there should be an investigation into what management has done over the past month or so as its shareholders are about to get screwed.

I will continue to update happenings on the book and if I find a company to write an article on but until I move later this month posts will continue to be few and far between most likely.

Remember if you follow this blog, me on Twitter, Facebook, or Seeking Alpha you will get a discount on my book when it comes out so please share this with as many people as possible so they can get the discount too, thank you.

Until next time.

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Dole Is Still Undervalued: Updated Valuation And Analysis Article After Sale To Itochu

Earlier this year I completely dedicated myself to learning the techniques, process, and proper mind set to become an excellent value investor.  I wrote my first full article back in June about Dole Food Company (DOLE).  Here are my thoughts on Dole back in June, and my conclusion thoughts after comparing Dole to Chiquita (CQB) and Fresh Del Monte (FDP).  Due to its big change since that time I have been asked by a reader what my thoughts about New Dole are now that it has eliminated what was its biggest problem; its debt.  Here is just one of the many articles outlining the sale to Itochu for $1.7 billion that is expected to close by the end of the year.

The reader wants to know what I think about New Dole’s prospects going forward, if I still think the company is undervalued, or if I would think about selling now if I find it to be overvalued.

The reader also asked me about the 2009 Dole Food Automatic Common Exchange Security Trust which I talk about here.

Since the transaction has not closed still, most of the information in the above articles remains intact as it pertains to margins and debt levels about Dole’s current state.  I will first value the business as I see it after the sale of its worldwide operations and then comment on what I think about New Dole’s prospects after the transaction closes.  When I refer to Dole as a whole I mean Dole before the sale of its worldwide operations.  New Dole is in reference to my estimates of Dole’s operations after the sale of its worldwide operations.  I have a call into Dole investor relations to get exact revenue and EBIT numbers for New Dole, but to this point I have not received a call back.  I am estimating that New Dole will lose about 36% of its EBIT after the sale of its worldwide operations.  I came to that estimate from looking at Dole’s sale to Itochu presentation from September which can be viewed here.

These valuations were done by me, using my estimates, and are not a recommendation to buy any stock in any of the companies mentioned. Do your own homework.

All numbers are in millions of U.S. dollars, except per share information, unless otherwise noted. Valuations were done using Dole’s 2011 10K, second quarter and third quarter 2012 quarterly reports and presentations, and Dole’s presentation of what it should look like after its asset sale.

The main thing I was worried about with any asset sale is that Dole would have to unload some of its very valuable land assets.  Thankfully after the transaction is completed New Dole will still own 113,000 acres of land including some very valuable land in Hawaii.  All assets below are being kept by New Dole.

Sum of the Parts Valuation

Land Holdings

Dole owns 25,000 acres of noncore land in Oahu valued by Dole at $500 million or $20,000 per acre.  Dole also owns 22,100 acres in Costa Rica, 3,900 acres in Ecuador, and 25,500 acres in Honduras.  Only part of each countries acreage are being used for growing fruit: 8,200 in Honduras, 7,300 in Costa Rica, and 3,000 in Ecuador meaning the rest could presumably be sold without interfering with current operations, about 33,000 acres.

  • All Costa Rica land valued at $5,000 per acre equals $110.5 million.
  • Al Ecuador land valued at $3,500 per acre equals $13.65 million.
  • All Honduras land valued at $3,500 per acre equals $89.25 million.
  • Remaining 36,500 acres valued at $5,000 per acre equals $182.5 million.

Adding total land value estimates up equals $895.9 million just in land value or $7,928.32 per acre, which comes out to $10.18 per share in total land value.

Estimated value of unused noncore land 33,000 acres in the above three countries at $5,000 an acre for Costa Rica and $3,500 for Honduras and Ecuador land is $75.7 million.

Total noncore land assets that could be sold valued at $575.7million total, or $9,925.86 per acre; $6.54 per share in land assets that could be sold.

Ship and Ship Related Equipment

Dole owns 13,300 refrigerated 40ft containers at a very conservative $5,000 each equal $66.5 million.  This is a very conservative estimate as these containers can sell for as much as $50,000 a piece.  I am using $5,000 per unit as my estimate because I want to be extra conservative and because I have not been able to find an exact break down on how many of the 13,300 container units are the 40ft refrigerated units as Dole’s also has some 20ft refrigerated, and completely unrefrigerated containers, so I wanted a very conservative estimate of price to be safe.

Dole also owns 11 ships which I am very conservatively valuing at $1 million each.  I found a few container ships selling for under $1 million but most were well over that price, with some reaching prices over $100 million.  I am again just being conservative here because I do not have vast knowledge on the prices of Dole’s ships.

Adding all of the land, ship, and container value up gets us to a total of:

  • All land, ship, and container value=$973.4 million, or $11.06 per share.
  • Only noncore land that could be sold, ship and container value=$653.2 million, or $7.42 per share.

None of Dole’s operations, cash, debt, or any of its building or other equipment is counted in the above calculations.  I will include Dole’s cash in the below valuation.

I did not include any of its buildings or other equipment in the above valuation because I could not find any concrete information and again did not want to speculate on numbers.

Now I will value Dole’s operations.

EBIT and Net Cash Valuation

Cash and cash equivalents are 82 and it has 0 in short term investments.

Dole as a whole has a trailing twelve month EBIT of 180.7 for its entire current operations.  Per Dole’s sale to Itochu presentation I am estimating that it will lose approximately 36% of EBIT after the sale of its worldwide operations which leads to a trailing twelve month EBIT estimate of 115.65 for New Dole’s operations.

5X, 8X, 11X, and 14X EBIT + cash and cash equivalents + short-term investments:

  • 5X115.65=578.25+82=660.25/88=$7.50 per share.
  • 8X115.65=925.2+82=1007.2/88=$11.45 per share.
  • 11X115.65=1272.15+82=1354.15/88=$15.39 per share.
  • 14X115.65=1619.1+82=1701.1/88=$19.33 per share.

Combined Valuation Of New Dole

All values are per share values.

Total Land, Ship, and Container Value Only Non Core Saleable Land, Ship, and Container Value
5X EBIT $18.56 $14.92
8X EBIT $22.51 $18.87
11X EBIT $26.45 $22.81
14X EBIT $30.39 $26.75

The only thing the above values are not containing is the debt.  The reason I am not including the debt in any of the estimates of intrinsic value is because Dole as a whole now has total debt of $1.4 billion but will be able to pay off all of it if it chooses to after it receives the $1.7 billion from Itochu.   Thus making the above very good estimates of what New Dole should be worth after selling its worldwide operations and ridding itself of the debt.

I had an additional two paragraphs written about Dole’s TEV/EBIT and ROIC margins but those had to be scrapped since I have still not heard back from Dole investor relations about New Dole’s exact numbers and I did not want to speculate.

New Dole is also forecasting that after the sale is finalized it will be able to save around $100 million in cap ex and corporate expenses by the end of fiscal 2013 which supposedly are going to be yearly savings going forward, and to be able to improve its overall business operations.  Even leaving improvement in operations, possible future acquisitions, and money savings out of all my calculations, New Dole should be selling at a very conservative minimum of $14.92 per share, and I actually think quite a bit higher.  Current share price for the whole of Dole is $10.70 per share, a 29% margin of safety.

Dole management has also stated that after the sale to Itochu is finalized that it may look to sell or spin off further assets, or make some acquisitions to bolster its operations within New Dole, any of which may help unlock further value in its shares.  This is pure speculation, but I could see Mr. Murdock who owns around 40% of Dole, possibly looking to take the New Dole private again now that its major problem has been eliminated so he can control its operations again, which would also help unlock shareholder value.

Why after all of the above has Dole as a whole been dropping in price lately?  My guess is that people have been selling for a combination of the following reasons:

  • That Dole just released bad quarterly numbers that missed analyst estimates and which sent the herd running.
  • Before that people were probably selling some personal shares that they owned to lock in profits since the stock has run up from around $8.50 a share to over $15 a share at one point.
  • A lot of it may also be that people are still treating this as a highly indebted, risky, poorly operated, and marginally profitable company that it is without looking deeper at the assets that it will still hold after receiving the $1.7 billion from Itochu, and how New Dole will now be a much healthier and less risky company.

However, even if you do not count any of its operations at all, Dole as a whole is selling now for less than JUST a conservative value of the land, ship, and containers that it owns.  Meaning the downside is covered by hard saleable assets even if New Dole’s operations were to become massively unprofitable, which I think is very unlikely.

New Dole looks to be massively undervalued, will still hold very good high value assets, especially saleable land, has some future potential catalysts that could help unlock value, it should be able to compete better with Fresh Del Monte and Chiquita, and New Dole will now be freed up to make acquisitions and improvements to its business and operations after the transaction with Itochu closes as it will not be burdened by the massive amount of debt that it has carried for years.

I plan to buy shares for my personal account and add more shares back into the accounts I manage after selling some Dole shares up 70% in September.

Here is a last minute update as Dole has set the shareholder meeting for December 6th to approve this transaction.