Seaboard Corporation: Not For Everyone

seekingalpha11-04

Seaboard Corporation's stock is among the lowest Beta food stocks and is a potentially effective overall market volatility hedge.Despite its hedging potential, Seaboard Corporation's fundamental and ...

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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSeaboard Corporation: Not For Everyone\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-11-04 23:04 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4732708-seaboard-corporation-not-for-everyone><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Seaboard Corporation's stock is among the lowest Beta food stocks and is a potentially effective overall market volatility hedge.Despite its hedging potential, Seaboard Corporation's fundamental and ...</p>\n\n<a href=\"https://seekingalpha.com/article/4732708-seaboard-corporation-not-for-everyone\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"SEB","symbol_name":"Seaboard Corp","start_time":0,"source_url":"https://seekingalpha.com/article/4732708-seaboard-corporation-not-for-everyone","article_id":"2481536790","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1345177558/image_1345177558.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2481536790","pubTimestamp":1730732640,"columns":[],"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Seaboard Corporation's stock is among the lowest Beta food stocks and is a potentially effective overall market volatility hedge.Despite its hedging potential, Seaboard Corporation's fundamental and operational performance is questionable in light of historically unreliable free cash flow generation.However, income-based valuation might overlook the more than -40% discount versus book value. Current market cap is similar to recorded net PP&E value alone.Seaboard Corporation may offer midterm trading opportunities due to its cyclicality but lacks the reliability needed for long-term buy-and-hold investors.I typically rate hold/neutral, even when my inclination is bullish or bearish. Rating systems don't consider time horizons or investment strategies. My articles aim to inform, not to make decisions.   The Good Brigade  SEB Checks One Box – But Is This Relevant?","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"SEB":"Seaboard Corp","BK4212":"包装食品与肉类"},"translate_title":"海岸公司：并不适合所有人","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"SEB":0.9},"content_text":"Seaboard Corporation's stock is among the lowest Beta food stocks and is a potentially effective overall market volatility hedge.Despite its hedging potential, Seaboard Corporation's fundamental and operational performance is questionable in light of historically unreliable free cash flow generation.However, income-based valuation might overlook the more than -40% discount versus book value. Current market cap is similar to recorded net PP&E value alone.Seaboard Corporation may offer midterm trading opportunities due to its cyclicality but lacks the reliability needed for long-term buy-and-hold investors.I typically rate hold/neutral, even when my inclination is bullish or bearish. Rating systems don't consider time horizons or investment strategies. My articles aim to inform, not to make decisions.   The Good Brigade  SEB Checks One Box – But Is This Relevant? In September, I published a study highlighting which food and beverage stocks could statistically serve as effective hedges against S&P 500 volatility, using the VIX as an example. Seaboard Corporation (NYSE:SEB) was not included in the analysis, as I focused on larger-cap companies. However, applying the same methodology to Seaboard Corporation, the company’s stock would also exhibit interesting characteristics in this regard. A 5-year monthly beta of 0.35 ranks among the lowest of all observed F&B stocks. Seaboard Corporation is therefore one of the least correlated with the S&P 500, with correlation coefficients around 0.3 depending on the time frame. Additionally, its 5-year negative correlation with the VIX stands at -0.2, meaning that when volatility rises, SEB shows very little tendency to decline as a consequence, and vice versa. While this does check the box for SEB as a potential hedge against overall market volatility, the question remains: is the company also attractive from a fundamental and operational perspective? A Very Brief Overview Seaboard Corporation has outperformed the S&P 500 when considering time periods that start before the turn of the millennium. While this is impressive, it is of little relevance when assessing investment decisions today. For those new to the company, as I am myself, here is a brief overview of what the company does. SEB primarily generates revenue in the Commodity Trading and Milling and Pork segments, which together contributed three-quarters of total revenue in the first nine months of the year. Compared to the same period last year, Pork saw slight growth, while CT&M experienced a significant decline. Overall, we are looking at approximately 9-10% less revenue on a trailing twelve-month (TTM) or nine-month basis compared to the previous year. Throughout all of this, SEB operates with very narrow margins – if any at all.   The performance displayed equates to an outperforming 6.000+% price return over 40 years. (Google) Free Cash Flow – The Holy Grail For Investors Just last week, Seaboard Corporation released its latest figures for the end of the third quarter. While an EPS loss of -$153.44 may initially seem alarming, the cause was quickly traced to a non-cash expense related to deferred income tax. This might be reassuring to some, but for me, it is reason enough not to delve too deeply into accounting-based profit metrics. Instead, let’s return to the basics: free cash flow is the metric that pays down debt and creates shareholder value, regardless of accounting standards. Analyst forecasts are unavailable, and for the purposes of this article, I have not elaborated on any rigorous own projections. Instead, let us look at Seaboard Corporation’s historical free cash flow, which is illustrated below. The cyclical nature of Seaboard Corporation’s cash flow becomes immediately apparent. This unreliable cash generation – which was already higher 20 years ago than it is today – in my view, disqualifies Seaboard Corporation as a viable long-term investment. To be clear, there are other metrics we will discuss later in the article that may speak in favor of Seaboard Corporation. However, one must consider whether other investments might offer greater reliability operationally.   dividendstocks.cash Country Risks? A First Valuation Attempt The free cash flow shown from the above source was successfully cross-verified as Seeking Alpha’s operating cash flow metric minus capital expenditures, divided by the share count. Looking at this history spanning more than 20 years, I feel confident using the average of $76 in free cash flow per share as an estimate of the company’s sustainable free cash flow power – and even round it up to $100. Based on the company’s current enterprise value of $3.2 billion – comprising a market cap of $2.6 billion and over $600 million in net debt – this represents a 32x enterprise-to-free-cash-flow multiple based on historical averages. Let us dive into what enterprise-to-free-cash-flow multiples might be considered appropriate based on objectively observable CAPM parameters. A current 4.6% rate on 30-year Treasuries serves as the basis, as usual, though I am fully aware that those of US treasuries are no longer viewed as entirely risk-free. Seaboard Corporation’s primary sales markets are the Caribbean, Central and South America, contributing over 30% of revenue, followed by the U.S. with 22%, and Africa and Colombia each contributing between 10% and 20%. While equity risk premia for the U.S. have been observed as low as 4.1%, according to Damodaran’s latest publication, those for other major markets – Caribbean, Central and South America, and Africa – are significantly higher, standing above or around 10% due to significantly elevated country risks. This results in a weighted average equity risk premium of 8% for Seaboard Corporation.   dividendstocks.cash However, the company’s low beta of 0.35, adjusted to 0.56 when applying the Blume adjustment, keeps the company-specific cost of equity at a relatively low 9.1%, despite high country risks. Taking into account a lower cost of debt, I arrive at a WACC of 7.5%. Applying a standard 2% terminal growth rate leads to a target free cash flow yield of 5.5%, translating to an 18x enterprise-value-to-FCF multiple. Applying this multiple to the $100 in free cash flow per share (the historically observed average over more than 20 years) suggests an enterprise value of $1.8 billion. This is roughly half the currently traded enterprise value. Why This Might Have Been The Wrong Approach In an article earlier this year, SA author Paul Franke rightfully pointed out that the current market capitalization is already well below the company’s book value. The company recently recorded a book value of $4.5 billion, to which its current market capitalization of $2.6 billion trades at a 40% discount. Comparing this to my previously derived equity value of $1.2 billion from free cash flow (which is $1.8 billion in enterprise value minus $600 million in net debt), the gap becomes even more pronounced. When price-to-book ratios above 1 – such as those seen in most large-cap companies dominating headlines – imply strong earnings power ahead, ratios below 1 would suggest future losses. Now, one must consider whether Seaboard Corporation indeed faces the kind of losses that could potentially more than halve its currently recorded equity. Therefore, one might question whether income-based valuation approaches are even appropriate here, and whether the net asset value should instead be viewed as a lower limit. Long-term assets, for example, standing against the $4.5 billion in equity, recently amounted to a net value of $2.5 billion. Thus, valuing Seaboard Corporation is no straightforward task and might, based on its book value, present a catch-up opportunity, while its income-based valuation – partly due to its historically low earnings quality – is unconvincing. This Company Is For Mid-Term Action  Given the high cyclicality and the potential to recover the book value in the market, yet still offering little in terms of qualitative earnings power, the stock might be suitable for traders speculating on cyclical price swings. However, it is not suitable for long-term buy-and-hold investors who prioritize more reliable business models.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2481536790"}