Second submission to Whopper Investments valuation and analysis challenege

Coca Cola


This challenge is Coca Cola (KO) before Warren Buffett bought in 1989.  Since I have studied KO quite a bit, I know what they ended up doing, and why they made some of the decisions that they did.

Since I have studied Coke quite a bit, I will not go into detail on what I would have done too much.  All that I will say, is that I would have done what they did ended up doing and consolidated, sold off non-core businesses, and concentrated on the core business of selling, distributing, producing, and expanding the market of the Coke syrup and the Coke brand around the world.  With an emphasis on expanding internationally.

I would have treated them in the same way I am treating Vivendi now, which I detailed in my Seeking Alpha article on them.  The major difference between the two companies is that Coke is a producer of some of the major assets, and Vivendi is not.


All numbers are in millions of US dollars, except per share information, unless otherwise noted.

  • 1988 revenue-$8,338
  • Multiplied by:
  • Average 3yr EBIT margin of:16.45%
  • Equals:
  • Estimated EBIT of:1,371.6
  • Multiplied by:
  • Assumed fair value multiple of EBIT: 8X
  • Equals:
  • Estimated fair value EV of KO:10,972.8
  • Plus:
  • Cash and Short term investment of 1,231
  • Minus:
  • Total debt: 2,124
  • Equals:
  • Estimated fair value of common equity: 10,079.8
  • Divided by:
  • Number of shares of 365
  • Equals:
  • A per share price of $27.62

That is the very low estimate of value.  I would only have used this estimate as my base case if we were in some kind of recession or depression.

  • 1988 revenue-$8,338
  • Multiplied by:
  • Average 3yr EBIT margin of:16.45%
  • Equals:
  • Estimated EBIT of:1,371.6
  • Multiplied by:
  • Assumed fair value multiple of EBIT: 11X
  • Equals:
  • Estimated fair value EV of KO:15,087.6
  • Plus:
  • Cash and Short term investment of 1,231
  • Minus:
  • Total debt: 2,124
  • Equals:
  • Estimated fair value of common equity: 14,194.6
  • Divided by:
  • Number of shares of 365
  • Equals:
  • A per share price of $38.89

This is what I would have used as my base case estimate, and the value I think that is probably closest to the actual share price at that time.

  • 1988 revenue-$8,338
  • Multiplied by:
  • Average 3yr EBIT margin of:16.45%
  • Equals:
  • Estimated EBIT of:1,371.6
  • Multiplied by:
  • Assumed fair value multiple of EBIT: 14X
  • Equals:
  • Estimated fair value EV of KO:19,202.4
  • Plus:
  • Cash and Short term investment of 1,231
  • Minus:
  • Total debt: 2,124
  • Equals:
  • Estimated fair value of common equity: 18,309.4
  • Divided by:
  • Number of shares of 365
  • Equals:
  • A per share price of $50.16.

This is what I would probably estimate the intrinsic value to be, probably still a bit too conservative.  I would have wanted at least a 30% margin of safety to that, so I would have bought around $35 per share.

The margins are incredible.  Revenue, EBIT, and gross growth rates are very good.   Best of all, even then they had dominant competitive advantages and positions in the soft drink market.

They had huge opportunities for growth outside of the US.  They had more suppliers and distributors coming online all the time.  They were improving relationships with the local economies.  They had dedicated people willing to go to extremes to sell the product.  More importantly, they had customers who were buying more and more Coke every year.  Meaning they could make more money from each can they sold overseas.

I would have been constantly evaluating my investment thesis and waiting for a buying opportunity.

Moats, Vivendi having trouble selling ATVI, and tips from Leon Cooperman


Finding companies that are undervalued and have a moat, or competitive advantage, is a winning combination for value investors.  Determining if a company has a moat can be difficult, and finding a company that has a long term competitive advantage can be even harder.  Here is an article from that talks about moats, and gives you some examples so that we can learn how to spot them.

See highlights bellow:

What is an economic moat, and how does one determine whether a company’s moat is wide?
Jeremy Lopez, CFA, is an analyst with

Mohammad A.

At Morningstar, the concept of economic moats is a cornerstone of our stock-investment philosophy. Successful long-term investing involves more than just identifying solid businesses, or finding businesses that are growing rapidly, or buying cheap stocks. We believe that successful investing also involves evaluating whether a business will stand the test of time.

Castles and Moats
The concept of an economic moat can be traced back to legendary investor Warren Buffett, whose annual Berkshire shareholder letters over the years contain many references to him looking to invest in businesses with “economic castles protected by unbreachable ‘moats.'”

Moats are important to investors because any time a company develops a useful product or service, it isn’t long before other firms try to capitalize on that opportunity by producing a similar–if not better–product. Basic economic theory says that in a perfectly competitive market, rivals will eventually eat up any excess profits earned by a successful business. In other words, competition makes it difficult for most firms to generate strong growth and margins over an extended period of time.

Vivendi having problems finding buyers for Activison Blizzard

I have thought for a while now that Vivendi would have difficulty finding a buyer for Activision Blizzard, this article only confirms my suspicions.  So far it looks like Microsoft and Disney have said no to buying ATVI.  If they cannot find a buyer, then they will either sell the shares on the open market or do some kind of spin off of ATVI.

Leon Cooperman

Leon Cooperman, who founded Omega Advisors investment fund in 1991, and who is now worth $2 billion, gives his tips on how to succeed in business, and how to become a better investment advisor.

I hope you enjoy.

Dole VS Chiquita VS Fresh Del Monte (Part 4)

This article is the fourth and final article in the series detailing the businesses of Dole (DOLE), Chiquita (CQB), and Fresh Del Monte (FDP).  If you want to see the valuations and brief descriptions of these companies please view these articles: DOLE, CQB, and FDP

In this article I will go over the margins of all the companies to determine if there are any sustainable competitive advantages.  I will decide whether I would buy any of these companies as they currently stand, without the possibility of any kind of merger, spin off, or massive asset sales.  I will also look into whether or not a merger between any of the companies would be a good thing.

Before I start with my analysis of the three I need to go back and look into Dole’s total contractual obligations in comparison to Chiquita’s and Fresh Del Monte’s.  At the time I did Dole’s valuations I wasn’t doing as thorough of research as I am doing now, and did not talk about their total obligations in the original article I wrote.

On page 40 of Dole’s 2011 10K they list their total obligations and commitments as of December 31, 2011.  The total obligations and commitments, including debt is $4.68 billion, and over the next two years it comes out to $2.661 billion.  Their current market cap is $765 million. Not a great ratio, but not terrible like Chiquita’s. The total obligations/market cap ratios for all of the companies are:

  • Dole: 4680/765=6.12
  • Chiquita: 3167/220=14.40
  • Fresh Del Monte: 1992/1310=1.52

Fresh Del Monte has by far the most sustainable ratio in my mind and should have no problems if another crisis hits them individually or the economy as a whole.  Dole might be able to make it through another crisis, even if they don’t decide to do some kind of asset sale or spin off like they are looking into right now.  Chiquita’s ratio is horrendous and I would be worried about them if I was a shareholder of theirs.

All of these companies have low amounts of cash and cash equivalents on hand, which is another thing to possibly worry about with Dole and Chiquita if something bad were to happen in the economy.  In any kind of emergency they would most likely either default on some of their obligations,  have to draw down their credit facilities or, try to take on some more debt if they could, most likely on unfavorable terms.

Now let us get to the margins of all three and try to determine if any of them have a competitive advantage.

Dole (DOLE) Chiquita (CQB) Fresh Del Monte (FDP)
Gross Margin (Current) 10.5 12.9 8.8
Gross Margin (5 years ago) 9 12.4 10.8
Gross Margin (10 years ago) 16 16.1 16.1
Op Margin (Current) 2.7 -0.3 3
Op Margin (5 years ago) 1.9 0.7 5.2
Op Margin (10 years ago) 6.5 2.2 10.3
Net Margin (Current) 0.75 0.69 2.84
Net Margin (5 years ago) -0.83 -1.05 5.34
Net Margin (10 years ago) 0.83 0.91 9.34
FCF/Sales (Current) -0.58 0.12 2.66
FCF/Sales (5 years ago) N/A -0.08 2.42
FCF/Sales (10 years ago) N/A 2.37 11.86
BV Per Share (Current) $9.30 $17.42 $30.41
BV Per Share (5 years ago) N/A $21.03 $23.65
BV Per Share (10 years ago) N/A $15.80 $13.51
ROIC (Current) 2.16 1.53 5.21
ROIC (5 years ago) -2.12 -2.72 11.66
ROIC (10 years ago) 1.98 1.63 22.56
Insider Ownership (Current) 59.06% 3.33% 35.72%

These companies for the most part all have operations in the same segments and the next table will be showing the margins of those comparable operations.

Dole Chiquita Fresh Del Monte
Total Fresh Fruit EBIT 172 N/A N/A
Total Fresh Fruit Revenues 5,024 N/A 2,721
Fresh Fruit EBIT Margin 3.42% N/A N/A
Total Vegetable EBIT 31 N/A N/A
Total Vegetable Revenues 1,002 N/A 523
Vegetable EBIT Margin 3.10% N/A N/A
Packaged Food EBIT 96.5 N/A N/A
Packaged Food Revenues 1,197 N/A 355
Packaged Food EBIT Margin 8.10% N/A N/A
Total Operations EBIT 300 33.7 116
Total Operations Revenues 7,224 3,139 3,590
Total EBIT Margin 4.15% 1.07% 3.23%

In a perfect world Chiquita and Fresh Del Monte would have broken their operations out further like Dole does.  Instead they choose to combine their operations reporting data, especially the Operating Margin data, otherwise known as EBIT.  So at this point it is impossible for me to break out the data further than it is in the above table.

Taking the above information, combined with the information in the previous articles, I think that I have enough information to make some judgements on the companies.

As things currently stand I would NOT buy Chiquita under any circumstance, not even with the possibility of a spin off or asset sale.  Their low margins, combined with their huge amount of total obligations, and low cash on hand scare me too much to invest in them.  That is not even taking into account the fact that in my valuations I found them to be about fairly valued to slightly undervalued, not nearly enough of a margin of safety for me considering all the risks. I also do not see them being bought out by anyone due to their high amount of total obligations.  The only thing going in their favor is that they are selling for less than book value by a good margin, which is currently $17.42 per share, but at this point it looks to be justified.

Fresh Del Monte is interesting.  They are selling for less than book value by a good margin, which is currently at $30.41 per share, they generally have the best margins of the three companies, and they also have high insider ownership, which I always love.  However, by my estimates they appear to be slightly overvalued at this point, and have low cash on hand.  They are also the company out of the three in the best position to make some acquisitions, in my opinion a merger between Dole and Fresh Del Monte could possibly be a good thing. They have already been buying back a lot of shares and are the only one out of the three to pay a dividend, which are more pluses.  At this point I am not going to buy Fresh Del Monte, but I will wait for an opportunity when they are undervalued and will reassess at that time whether or not I will be a buyer then.

Without the possibility of a spin off or asset sale that I outlined in my original article on Dole, I would not be a buyer into their company right now either.  Pretty much the same problems as Chiquita: high debt/total obligations, low cash, low overall margins.  However, they do have high inside ownership, they are selling at a slight discount to book value, and by my valuations are extremely undervalued.  I do stick to my original assessment about Dole though, that they are a great spin off opportunity if they decide to do a spin off or asset sale.  If they do what I suggested in the original article I think they could unlock value, get rid of a lot of their debt, and become a much more focused and profitable company.  Especially if they put a lot of their resources into the packaged fruit portion of the business, as it has the highest margins in Dole’s operating structure.  Dole also has the 88,000 acres of land that they could sell some of to pay down debts as well.

I did buy half of a position in Dole based on the spin off thesis in my original article.  I am waiting to see if they announce a spin off or asset sale to jump fully into Dole at this point.  They are in the spin off portion of my portfolio which I plan to hold for 6 months to several years.  I do not consider them a long term buy and hold for decades company.

It also appears to me that none of the companies have any kind of sustainable competitive advantage, with their wildly fluctuating margins over the past 10 years, and no one becoming dominant.

I hope everyone has enjoyed and learned something from the analysis and valuation series on Dole, Chiquita, and Fresh Del Monte, and I look forward to some feedback.

Chiquita Valuation. Part 2 Of Series On Valuation And Analysis Of Dole, Chiquita, And Fresh Del Monte

In post one of this series on Dole and their competitors here, I got into a valuation of Dole and the potential spin off that could unlock their value.

In my next two posts I will detail two of Doles biggest competitors, first Chiquita and then Fresh Del Monte, where I will value both of the companies and detail their businesses.

In the fourth post of this series I will attempt to determine if a merger between any of the three companies should happen, and what I think would be the best options. I will go over the margins of each company and try to determine if any of the three have any sustainable competitive advantages.  I will also put forth my thesis of which one, if any, would be a good long term buy without the possibility of a spin off or merger from any of the companies.

I will start with the valuations of Chiquita (CQB), and then get into the details and analysis a bit of their company.

Chiquita Brands International is a leading international marketer and distributor of high-quality fresh and value-added food products from energy-rich Chiquita® bananas and complimentary fruits to nutritious blends of convenient green salads. Description is taken from their website.  They do business under the Chiquita and Fresh Express premium brands and other related trademarks and operate in nearly 70 countries worldwide.  For further information please refer to their website.

Both Chiquita (CQB) valuations were done on 6-20-2012.  All numbers are in millions of US dollars, except per share information, unless otherwise noted.  Valuations done using March 2012 10Q and 2011 10K.

These valuations are done by me, using my estimates, and are not a recommendation for you to buy the stock. Do your own homework.

Assets: Book Value: Reproduction Value:
Current Assets



Marketable Securities



Accounts Receivable (Net)






Prepaid Expenses



Other Current Assets



Total Current Assets



PP&E Net






Intangible Assets



Total Assets



  • Total Shares are 46

Reproduction Value:

  • With IA: 842/46=$18.32 per share.
  • Without IA: 676/46=$14.70 per share.

Current Price is $4.84 per share.

Second Valuation:

  • Cash and Cash equivalents of 41
  • Number of shares are 46
  • Total Current liabilities are 383

Short term investments of 0 + cash and cash equivalents of 41- current liabilities of 383=-342

  • -342/46=-$7.43 in net cash per share.

Chiquita has a trailing twelve month EBIT of 25.

5X, 10X, and 14X EBIT.

  • 5X25=125+41=166.
  • 10X25=250+41=291
  • 14X25=350+41=391
  • 166/46=$3.61 per share.
  • 291/46=$6.33 per share.
  • 391/46=$8.50 per share.

Current share price is $4.84 per share.

Being an extremely conservative investor I usually use the lowest valuation number I get and use that one as what the company should be valued at.  So not only are they currently overvalued with my low estimate at $3.61, there is even less margin of safety due to the -$7.43 in net cash per share.  Even if I used the $8.50 number as my estimate of value, subtracting the negative net cash per share only leaves you at $1.07 per share.

Enterprise Value, which is taken from Yahoo Finance is currently 756.72 million.

I adjusted, and added to their enterprise value because they have a lot of obligations over the next few years that aren’t counted in the regular debt number.

To their enterprise value I added TOTAL operating leases, pension, and purchase commitments.

Adjusting their enterprise value is 756.72+2392=3148.72

  • Unadjusted EV/EBIT=30.27
  • Adjusted EV/EBIT=125.95

Both numbers are incredibly high, especially as you compare them to Dole and Chiquita.

On page 9 of Chiquita’s 2011 10K they state total debt outstanding is at $572.5 million.  Page 10 is where they list the other “contractual obligations” with the total obligations being $3,167 million.

This is another reason why you MUST read annual and quarterly reports.  When I first started I would have never known about those other obligations.  I would have taken the $572.5 million number and compared that to Dole’s debt and thought that Chiquita was in a much better position.

With the above information I will not be buying into Chiquita at this time.

In my next post, the third of the series, I will value and talk about Fresh Del Monte’s (FDP) operations.

In the fourth and final posting in this series I will look into Dole’s numbers again to see if I missed any of their contractual obligations.  I will also compare all three companies margins and decide if any of the three companies meet my criteria for a long term value hold, without any spin off or merger.