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Uploaded: May 16, 2008 at 8:37 pm
Author: ThomsonFinancial
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Squawkbox market analysis with Danielle Morellino from Thomson ReutersTranscript:Welcome to the Squawk Box On the Radar Report. I'm Danielle Morellino.One of the individual names on our radar this week is the Andersons, a stock near the bottom of a long trading range that just reported a quarterly miss we think is unlikely to be repeated.The grains, ethanol and rail player missed earnings estimates by $0.16 when it reported earlier this month. The quarter was wrecked by a particularly tough March due to high input cost that were exacerbated by the company's hedging strategy. Basis widened from where the company put on its hedge for the grain in its elevators, which caused an$11 mln pretax loss. As a result, Q1 operating income was far lower than the year-ago period.There is often the risk of a hedging strategy problem with a company like ANDE. And in this quarter, the cash markets wheat and other grains did not rise at the same pace as the futures market, which led to the hedging issue.But on the company call, management made it clear to analysts that it expects to regain the majority of the basis loss it suffered. The company says that time is already helping the basis to adjust, as wheat prices have come down, and cash and futures prices for wheat are now closer in line. Our take is that it was a lightening strike that likely won't happen again any time soon.What was lost amid headlines about the big EPS miss is that the company provided upside guidance for the fiscal year, despite the hedging debacle. Some traders seem to believe that the ethanol story is over, with less corn acreage expected to be planted next year, and the threat of eventual competition from Brazilian companies that can ship ethanol to the U.S. and sell it at lower prices. Still, we think ethanol prices will rise in coming months. In addition to its exposure to the ethanol market, ANDE has a strong fertilizer business that its building on with its acquisition of Douglas Fertilizer. The deal is expected to add to earnings this year. We think fundamentals in the fertilizer business remain extremely strong, with prices for some fertilizer types doubling from year-ago levels.Andersons also just raised its dividend 10% to 8.5 cents a share.Valuation wise, the stock has exposure to some very attractive markets, yet trades near 11x forward earnings, near a 5-year trough, and vs. a 5-year average P/E of more than 16x. And it also has valuation support near 9x earnings, where it bottomed in August and December 2004.The timing seems right for an ANDE long trade. At minimum, it's one you need to put on your radar.For the Thomson Squawk Box On the Radar Report, I'm Danielle Morellino. Visit Thomson Squawk Box Dot Com for facts, data and insights on stocks you won't find anywhere else.