The last time I discussed Ohio-based agribusiness The Andersons (Nasdaq:ANDE) was in September 2010, when it was enjoying a huge increase in its earnings per share thanks to rising ethanol prices. Twenty months later and its business just keeps chugging along. As of May 8, its stock has risen 32.5% compared to 24% for the Russell 2000 over those 20 months. That's not bad until you realize it's averaged 24.9% annually over the last decade and is currently delivering record earnings. I liked the company back then and I like it even more today. Here's why.

SEE: Is Biofuel A Bad Idea?

Latest Quarter

Search the word "record" in its first quarter earnings release and it comes up a total of five times. Overall, first quarter net income attributable to the company was a record $18.4 million on $1.1 billion in revenue. Its grain group, the largest of its six segments in terms of revenue, generated record operating profits of $19.4 million, 28.5% higher year-over-year. Lastly, its rail group, which has suffered greatly during the economic downturn, generated record operating profits of $8 million on revenue of $36 million. The rail group's operating margin in Q1 was 22.2%, 1000 basis points greater than the first quarter in 2011. Unfortunately, if you read farther down the press release, you'll see that management feels the second quarter will be a challenging one and that 2012 will be its second best year ever; meaning it won't match the profitability of 2011. Not to worry. There's plenty to keep it moving higher.

Looking Back

The Andersons have six segments today including Grain, Ethanol, Plant Nutrient, Rail, Turf & Specialty and Retail. Five years ago, it had just five with grain and ethanol combined into one. In 2006, its ethanol business generated just $21.7 million in revenue or 1.5% overall. It did six times that in the first quarter alone. The grain and ethanol segments combined generated $28 million in operating income in 2006. In 2011, it was $110.6 million. The beauty of its business model is that it's a team effort. When one or two segments aren't doing too well from a profitability standpoint; there are others that are. Case in point is the rail segment.

In 2006, it generated 34% of its overall operating profit. In 2011, it generated just 6.2% overall, yet its total operating profit was 178% higher at $159.2 million. A second example is the retail group, its smallest segment both in terms of revenue and profits, which hasn't achieved an annual operating profit since 2008 and even then it was less than a million dollars on revenues of $173 million. Two years earlier, however, the retail business delivered an operating profit of $3.2 million on $177 million in revenue. At the same time, its plant nutrient business barely registered in 2006, delivering an operating profit of $3.3 million on $265 million in revenue. Five years later, the segment's operating profit was $38.3 million on $690.6 million in revenue. In five years, its operating margin went from 1.2% in 2006 to 5.5% in 2011. What segment will be the star performer in 2016 is anybody's guess, but there will be a star. You can be sure of that.

Stock Performance versus Peers

Company

EV/EBITDA (TTM)

Five-Year Total Return

(Annualized)

The Andersons

7.45

4.38%

Cal-Maine Foods (Nasdaq:CALM)

5.71

26.08%

Tractor Supply (Nasdaq:TSCO)

14.28

30.33%

FreightCar America (Nasdaq:RAIL)

12.10

-13.94%

Central Garden & Pet (Nasdaq:CENT)

10.22

-9.31%


The Bottom Line

Looking at the table above, the only thing that separates the performance of its stock from that of Cal-Maine or Tractor Supply over the past five years is what happened in 2008. While Cal-Maine and Tractor Supply both achieved positive returns in 2008, The Andersons experienced a 62.5% decline in its market cap, far worse than the S&P 500. Given the decline, you'd think it lost money in 2008. But it didn't. In fact, it made $32.9 million. Whatever happens in 2012, this is a company that will continue to perform. Buy some now and then some more if it drops below $40 sometime in 2012. Then, should it ever drop below $20, where it was in 2008, back up the money truck and buy even more. Long-term, you should be very happy with the results.

SEE: Market Capitalization Defined.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Will Ashworth did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  3. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  4. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  6. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  7. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  8. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  9. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
  10. Professionals

    Tips for Helping Clients Though Market Corrections

    When the stock market sees a steep drop, clients are bound to get anxious. Here are some tips for talking them off the ledge.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  5. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  6. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
RELATED FAQS
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!