The Upcoming Earnings Report from Armanino Foods

Armanino Foods of Distinction (symbol AMNF on the pink sheets) is a stock that I have written about for years. Today, the stock is up to a 52 week high of 95 cents on heavy volume in anticipation of the third quarter earnings report which should be out in the next few days. Even with today's rise, the stock remains a strong buy.

Last quarter, Armanino earned 2.5 cents per share. Based upon the seasonality of the company's earnings, it is reasonable to expect that the earnings reported for the third quarter will be close to that number. Indeed, if the third quarter surpasses the second by more than ten percent, it will be a strong indicator of accelerating profitability at Armanino. While it may seem foolish to "expect" a good report from the company given the lack of interim reporting, we have the declaration of the special dividend a about a month ago to guide us on that front. The board declared a 1.2 cent special dividend in addition to the regular quarterly dividend of the same amount. The Armanino board is generally conservative and would be unlikely to declare a special dividend unless business conditions indicated that it was fully warranted. Thus, the expectation of good results has a solid basis in the conduct of the company.

If Armanino earns just the same as it did in the second quarter, the earnings for all of 2012 should be in the area of 9 cents per share. Even at 95 cents, the stock is still selling at just ten and a half times this years earnings. Further, 9 cents per share would be an increase of about 27% over the earnings for 2011. A price earnings multiple of ten is too low even for a stodgy, slow growing food company; in that case the multiple ought to be in the area of 13 or 14. For a company growing earnings at 27% per year, a price earnings multiple of ten is ridiculously low. For example, B&G Foods has been growing earnings at about the same rate as Armanino. It has a price earnings multiple in the mid 20's. Obviously, B&G Foods is a bigger company, so there should be something of a discount due to the microcap nature of Armanino. Nevertheless, Armanino ought to carry a multiple of at least 15. With earnings per share of 9 cents, that multiple translates into a stock price of $1.35, a 43% premium over the latest quote.

It is also worth noting that Armanino has already announced that it has locked in its ingredients purchases for the rest of the year. That removes the risk of commodity price spikes and reduces risk in the stock price.

Right now, Armanino is a strong buy ahead of the earnings report. I am revising my eighteen month price target to $1.35.

DISCLOSURE: I am long Armanino stock. It is one of the biggest holdings in the accounts I manage.