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Looking through the list of top % gainers on the NYSE this afternoon, in search of a new stock to write up here on the blog, I came across a familiar name that I haven't evaluated here but I have always thought of as a 'classical' growth stock story. William Wrigley Jr. Company (WWY), which as I write is trading at $58.99, up $3.95 or 7.18% on the day. I would like to review this stock and show you the information that I found that makes me believe this stock deserves a spot on my blog and why I believe
WM. WRIGLEY, JR. COMPANY (WWY) IS RATED A BUY
I do not own any shares of Wrigley, nor do I have any options on this stock.
What does this company do?
According to the Yahoo "Profile" on Wrigley (WWY), the company
"...together with its subsidiaries, engages in the manufacture and marketing of chewing gums, mints, candies, and other confectionery products in the United States and internationally. The company offers its products in approximately 180 countries under Wrigley�s Spearmint, Juicy Fruit, Altoids, Doublemint, Life Savers, Big Red, Boomer, Pim Pom, Winterfresh, Extra, Freedent, Hubba Bubba, Orbit, Excel, Creme Savers, Eclipse, Airwaves, Alpine, Solano, Sugus, Cool Air, and P.K. brand names."
How did they do in the latest quarter?
As is frequently the case on stocks we find moving higher on the top % gainers list, it was the announcement of 1st quarter 2007 results this morning prior to the opening of trading that drove the stock sharply higher. Sales came in at $1.26 billion, up 17% from the same quarter the prior year. Consolidated net earnings came in at $143 million, up 28% from last year. On a diluted per share basic, this came in at $.52/share, up 30% from last year. Excluding one-time restructuring and one-time assets sale, the non-GAAP earnings still climbed 19% vs the year-ago quarter.
What about longer-term results?
Reviewing the Morningstar.com "5-Yr Restated" financials on Wrigley, we can see a very steady increase in revenue from $2.7 billion in 2002 to $4.7 billion in 2006. Earnings have also increased without 'missing a beat' from $1.14/share in 2002 to $1.90/share in 2006. An added 'plus' is the fact that the company pays a dividend and has been increasing that dividend on a regular basis from $.64/share paid in 2002 to $.99/share paid in 2006. In addition, there has been a steady reduction in the outstanding shares with 353 million shares in 2002 declining to 277 million in 2006 and 276 million in the trailing twelve months.
The company is solidly cash flow positive although this hasn't been increasing recently (actually has declined) from $504 million in 2004 to $395 million in 2006.
The balance sheet is satisfactory with $254.8 million in cash and $1,226.5 million in other current assets. This total of $1,481.3 million in current assets, easily covers the $1,027.1 million in current liabilities and yields a current ratio of 1.44. (I consider current ratios of 1.25 or higher 'healthy').
What about some valuation numbers on this stock?
Checking Yahoo "Key Statistics" on Wrigley (WWY), we find that this stock is a large cap stock with a market capitalization of $16.01 billion. The company trades at a relatively rich p/e of 30.78 with a forward p/e slightly better (fye 31-Dec-08) estimated at 24.09. Even with the nice growth expected, the company does sell at a relatively rich PEG of 2.49. (I generally like PEG ratios between 1.0 and 1.5).
Examining the Fidelity.com eresearch website on Wrigley, we can see that the company is also relatively richly valued in terms of Price/Sales (TTM) coming in with a ratio of 3.26 compared to an industry average of 1.52. Fortunately, the company is slightly more profitable than the average in its industry, with a Return on Equity (TTM) of 22.50%, compared to the industry average of 20.41% per Fidelity.
Finishing up with Yahoo, we can see that there are 276.14 million shares outstanding and 218.04 million that float. Of these, 6.36 million shares were out short as of 4/10/07, representing a significant 6 days of trading volume (the short ratio) or 3.20% of the float. The possibility of a "squeeze" of the shorts is suggested by the heavy volume of shares traded today--5.35 million already, with an average volume over the past three months of 1.1 million shares/day.
As noted, the company pays a nice dividend of $1.16 (going forward) with a 2.10% yield. The last stock split was a 5:4 split April 12, 2006.
What does the chart look like?
If we examine a "Point & Figure" chart on Wrigley from StockCharts.com, we can see that the stock has moved nicely higher this past year from a $43 level in July, 2006, to the current level near $60. Overall the chart looks encouraging to me if maybe a little overextended on the current move.
Summary: What do I think?
Wrigley is a very interesting stock. I generally do not spend much time on the large cap issues because they tend to move slowly and have a harder time doubling in size! However, Wrigley came out with a very strong earnings report that exceeded expectations on both revenue and earnings. In the face of a significant short interest, the stock climbed sharply today.
More importantly, longer-term, the company has been steadily increasing revenue, earnings, and a dividend (!), with steady free cash flow and a decreasing number of shares outstanding. Their balance sheet is solid.
On a negative note, the p/e is a bit rich, the PEG is about 2.5, and the Price/Sales is higher than the average in the industry. Thus you are paying for what is generally felt to be a "quality" stock, one of the ultimate blue chips stocks out there I would say.
If you are looking for a large cap stock with something which seems to be as recession-proof as chewing gum :), then this stock might just fit the bill. Something to 'chew on' anyhow :)!
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