The last two weeks have not been good for Saputo (TSX:SAP).
The company released its fourth-quarter earnings on June 5, and investors were not pleased with the results. Although revenue was up a whopping 18% — thanks to recent acquisitions — earnings actually declined versus the same period last year. The bottom line came in at $0.32 per share for the quarter versus $0.35 per share last year.
So, what happened? A multitude of things contributed to Saputo’s weakness, including a weaker Canadian dollar weighing down international results, a more competitive milk market in Canada, weakness in its U.S. division, and higher costs related to acquisitions and warehousing. It was death by a thousand cuts.
This weighed down full-year results, with fiscal 2019’s adjusted profit falling more than 12% versus the year before.
These results hit the stock hard. Shares were trading at more than $45 each before earnings. These days, the stock trades hands at approximately $39 each, and it keeps falling. Shares are just a few percentage points away from setting a fresh 2019 low.
This is all bad news for existing shareholders, but great news for investors looking to finally get a reasonable price for this growth stock. Here’s why Saputo shares could be much higher a year from now.
Fiscal 2019 was a busy year for Saputo, with the company making three separate acquisitions. The largest was its deal to buy Murray Goldburn, a dairy producer in Australia. Saputo also made an acquisition in Canada and one in the United States.
It also announced a couple of major deals after fiscal 2019 concluded, including acquiring Dairy Crest Group PLC, a U.K.-based dairy company for a total price of $2.1 billion. It also announced a $285 million deal to acquire the specialty cheese business from Lion-Dairy and Drinks in Australia.
There’s just one problem with this growth: based on recent results from these companies, the growth isn’t expected to really impact the bottom line. Dairy Crest earned just $90 million in fiscal 2018 after exceptional items. This means Saputo paid over 23 times earnings for its latest prize.
Analysts believe growth will really pick up after a short consolidation period. They currently estimate Saputo will earn $1.74 per share in fiscal 2020, down from estimates of $2.05 per share just a month ago. 2021 earnings are forecast to exceed $2 per share, with analysts guessing the bottom line will be $2.08 per share.
In short, these two acquisitions should feature a little short-term pain for long-term gain. And since most traders have problems looking out more than six months into the future, there’s a golden opportunity staring investors in the face today.
The bottom line
Investors are getting the opportunity to pick up Saputo shares at approximately 19 times 2021’s earnings. This is a relative bargain for a growth stock that has spent the majority of the last decade trading at above 20 times earnings. And remember, you get additional upside potential if the company can get some of its issues under control.
It isn’t often Saputo shares get this cheap. Take advantage of it and buy a world-class growth stock at a reasonable price today.
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Fool contributor Nelson Smith has no position in any of the stocks mentioned. Saputo is a recommendation of Stock Advisor Canada.