How many iconic food brands could you name off the top of your head right now.
Odds are, even if you could rattle off 30, you’d miss a few dozen.
But if you went to the grocery store and walked down the cereal aisle that, say, didn’t have any Raisin Bran, or the canned food aisle that didn’t have any Campbell’s, you’d notice something was off.
Well, that’s what happened to the latest addition to the Hidden Profits model portfolio. It disappeared from store shelves… twice! Each time there was a consumer uproar. But then something spectacular happened…
Like something you’d see in a made-for-boardrooms movie, a savior appeared.
He has an incredible track record of turning around languishing brands.
He’s made more than 80 private equity investments over 30 years.
His last 12 deals are reported to have delivered an average internal rate of return of 60%! That’s means 60% per year!
And since his arrival at our new Hidden Profits gem, new management has improved profit margins, making them some of the fastest and widest I’ve ever seen. It’s something to behold, really.
He and his team have done it by making dozens of tweaks, from improving delivery systems to increasing shelf life. And based on the six earnings quality metrics I use to uncover our hidden profits, there’s no denying that this company is on the right track and paying its shareholders well.
Here’s a breakdown of its forensic scorecard:
Test #1: Revenue Recognition
Grade = B.
There are no signs of accelerated revenue recognition, which is one of the biggest red flags that can derail the entire income statements.
The product has ample consumer demand, which lessens the risks that future expected revenues be pulled into the current quarter.
Test #2: Cash Flow Quality
Grade = A.
The company has strong cash flows.
More importantly, its cash flow is stable and recurring. This will allow them to grow over time as debt and interest payments are reduced.
Test #3: Earnings Quality
Grade = A.
On the earnings quality front, our newest addition earns top marks thus far, since its reorganization.
In particular, working capital is under control.
Thanks to strong end demand and the improvement of delivery systems, there’s less risk of management needing to use accounting aggressively to prop up margins and drive earnings growth.
Test #4: Expectations
Grade = C.
The company’s score is only average here because there is some Wall Street coverage, with everyone on a “buy” rating right now.
Estimates could go up on a high-quality beat and excellent execution, but there’s less room for major upgrades at this time.
Test #5: Valuation
Grade = A.
Currently, the stock trades at a discount to its peers.
Importantly, these valuation metrics do not feature in any future growth. That’s why, the stock is cheap at current levels.
Test #6: Shareholder Yield
Grade = A.
Our newest “Phase A” company has stable and recurring cash flows that will allow it to reduce debt. Over time, share buybacks and a dividend can further enhance shareholder yield.
The cherry on the top is that I expect this company will be sold, and at a premium of 50% to 100% or more to today’s price, in three to five years. It will be too valuable for the acquirer to ignore and to sell for cheap.
It’s a smart play for the short, middle, and long term. And you should get it into YOUR Hidden Profits portfolio immediately. You can find all the details here.
P.S. I just got word that Harry has an important message for you next Tuesday. Quite literally, when he told me what he wants to tell you, I nearly dropped the phone! I don’t think I’ve EVER heard Harry say anything like this before. Make sure you don’t miss it.