Armanino foods -- an update

I have posted about Armanino Foods of Distinction on numerous occasions. Armanino is a small California based company in the italian foods business. It trades on the pink sheets, but it behaves more like a large established food company. It pays a large dividend, exhibits steady growth and has a conservative but savvy management. In recent weeks, the stock has been trading at 50 cents per share. At that level, the regular dividend was over six percent, and there was a likelihood of special dividends from time to time that would raise the return even higher. Now, there is big news. The company announced on Thursday that it would be paying a special dividend this quarter that will double the size of the expected regular dividend. In addition, Armanino announced that it will be buying back about 6% of its outstanding stock, and expenditure of up to one million dollars. In response, the stock has jumped to just under 54 cents per share. Even at this point, I think that Armanino is a strong buy.

First, at 54 cents, the stock is selling at about 9.6 times earnings for the trailing twelve months. Because the company is so small, there are no estimates of earnings for the next twelve months. We do know, however, that the company has been setting records for sales and profits each quarter for the last few. There are new customers who are coming on line according to the press releases issued by the company. There is no reason to assume that the profits moving forward will do anything but continue to grow. Even a 15% growth rate would take the P/E down to 8.3, which is low for a food company of this sort.

Second, it is likely that there will also be another special dividend in the fourth quarter. The company traditionally pays special dividends at the end of the year, not in the third quarter. The extra dividend (and the buy back) probably is a sign that sales and profits are doing very well. The conservative management of Armanino is not one that throws money around. If they are issuing a special dividend now, they are certain to have the cash to do it easily. My estimate is that they will do so again next quarter.

Third, it is also likely that the regular dividend will be adjusted upward in 2011. After paying out a special dividend this year, the management is likely to increase the regular dividend by at least 10% and maybe more.

Fourth, the stock buy back will support the price of the stock moving forward for some time. Armanino is thinly traded. A million dollars would buy well over 100 days of average trading volume. This means that most likely, the purchases will be made in private transactions outside the market. Even so, there will be many made in the market. This will provide support for the price for quite some time. Beyond that, the private purchases will likely remove stockholding that could have been sold in the market that would put pressure on the stock price. Most likely, these are holdings inherited by the heirs of Bill Armanino, the company's founder and former CEO.

In short, all the factors for an increase in the stock are present. I foresee a rise in the stock price to at least 65 cents per share in the coming months. Meanwhile, those who hold the stock will be getting a nice return from the dividends.