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Inside the Madness

Value Plays on the Radar

Nicole Urken, Mad Money Research Director

From: Nicole Urken
Sent: Monday, September 17, 2012 3:25 PM
To: James Cramer
Subject: DOLE

Some company specific drivers at DOLE even though has been a dog.

From: James Cramer
Sent: Monday, September 17, 2012 3:28 PM
To: Nicole Urken

Let’s take a closer look at it.

As earnings season has arrived, we always advocate parsing through the reports and conference calls as read-throughs to other companies. However, before the analysis officially kicks off full-speed ahead, it is always interesting to keep in your back pocket some companies that have case-specific drivers.

One that we looked at last month for example is Dole Food Company a name that has lagged due to poor management under Chairman David Murdock, who owns a majority of the company. Margin optimization have not been priority and the company has assets that are non-strategic (to say the least) like the largest maze in Hawaii. With a recent asset sale just announced, which incorrectly hardly managed to move the stock, this name remains well positioned here as the sum of the parts is worth more than the whole with a bit more indication that monetization could be on the horizon. In other words, management may soon be returning money to your pocket book instead of taking a ride on the pineapple express.

How much could Dole be worth as a real company vs a playpen under Murdock? Well, Dole just received net proceeds from the packaged food business and some of the Asian related fresh foods business of about $1.4bn or $15.70 per share. The remaining portion of Dole’s fruit and veggies business generates about $250mm in EBITDA. If you give this side of the business a similar valuation to its peers, you get something that’s worth $1.5bn or $16.73 per share. Less net debt, the stock could be worth $16.21 per share, a substantial premium to its current price. And that’s without even counting the upside from Dole’s unused land assets—the company owns 113 thousand acres of land all over the world, but it’s not farming all of them. Of course, Oracle’s Larry Ellison just bought the Hawaiian island of Lanai from Murdock’s Castle & Cooke for more than $500mm. Dole’s aggregate non-core assets are worth $500mm, or about $5.50 per share—so more potential upside to over $21 per share! This isn’t something that is going to happen overnight, but is an interesting case-specific story that might be interesting to keep on your radar. Not to mention that here is one name that has a Teflon business model for wage compression, something that New York-based fund manager Three Court LP has pointed to, in addition to laying out that the company remains undervalued.

Another case specific name that has been a winner for us on Mad Money? Cedar Fair, which we originally recommended back in August 2011. This regional theme park operator represents an interesting play on “staycation” trends but, more intriguingly, is a stealth high yielder. Cedar Fair is interestingly a master limited partnership, and just like those high-yielding pipeline stocks that we often discuss on Mad Money—like Kinder Morgan Partners—Cedar Fair has to pay out a significant percentage of its cash flow in the form of distribution to shareholders. As earnings grow, the dividend will grow. And considering the company has projected paying at least $2 per unit in 2013, the yield is poised to continue to grow, as it already has from its 2 percent level in our original recommendation. (Importantly, the yield is not growing because the stock price is going down… it’s because the dividend is increasing!) In addition to operational improvements, Cedar Fair is benefitting from refinancing all of their debt in the summer of 2010 and early 2011. While we don’t often dive into these balance sheet items frequently on Mad Money, a significant decrease interest expense could a big impact to earnings per share – something that matters.

As a side note: In terms of regional theme parks, Six Flags has also been a winner. SIX filed for bankruptcy in 2009 but restructured and emerged from bankruptcy less than a year later… and now, with a leaner balance sheet, is posting strong results. The trade-down vacation effect and with both names facing limited competition in their core markets, these names do remain interesting despite their runs.

The bottom line: Keep your eyes open for earnings season clues as always. But also keep in your back pocket some case specific turnaround stories with company-specific catalysts.
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