In order to be successful at investing, investors should find a great company and stick to it through the ups and downs of the stock market. Recently, I came across a nutritional snack food and frozen beverages company, J&J Snack Foods Corp. (NASDAQ:JJSF). In the past ten years, J&J’s stock price has been on the rise, from around $15 per share to $72 per share. Since 2005, J&J has also paid consistently increasing dividends. Is J&J Snack Foods a good company for investors to hold for the long run? Let’s find out.
J&J Snack Foods Corp. (NASDAQ:JJSF), incorporated in 1971, is a nutritional snack foods manufacturer and frozen beverages distributor to the food service and retail supermarket industries under several brand names, including Superpretzel, Luigi’s, Whole Fruit, Icee and Minute Maid. The company operates in three main business segments: Food Service, Retail Supermarkets and Frozen Beverages.
The majority of its revenue, $521.3 million, or 62.7% of the total 2012 sales, was generated from the Food Service segment. The Frozen Beverages segment ranked second, with nearly $200 million in sales, while the Retail Supermarket segment contributed nearly $110 million in revenue. In the Food Service segment, the majority of sales, $266 million, were generated from bakery’s sales, while soft pretzels ranked second with $118 million in revenue. Among the three, the Retail Supermarket segment generated the highest operating margin at 12.1%, while the operating margin of the Food Service segment was the lowest at only 9.5%. The Frozen Beverages’ operating margin stayed in between the others at 10.9%.
Consistent growth performance on debt-free balance sheet
In the past ten years, J&J has experienced a consistent growth in its top and bottom lines. Its revenue rose from $365 million in 2003 to $831 million in 2012, while its EPS increased from $1.10 to $2.86 during the same period. What interests me is the fact that J&J has consistently generated positive increasing cash flow. Since 2003, its operating cash flow and free cash flow have nearly doubled to $89 million and $47 million, respectively. Furthermore, J&J Snack Foods Corp. (NASDAQ:JJSF) has raised its dividend payment at an annualized rate of nearly 9.6% in the past eight years. However, the company’s payout ratio is quite conservative. In 2012, it paid only $0.52 per share in dividends with a payout ratio of only 18.2%.
Interestingly, J&J does not employ any debt in its operations. As of December 2012, it had $482 million in total stockholders’ equity, $81 million in cash, and no debt. The equity and other investments were recorded at around $105 million.
Peer comparison
At $72 per share, J&J Snack Foods Corp. (NASDAQ:JJSF) is worth around $1.35 billion on the market. It is valued at 10.35 times EV/EBITDA. Compared to its peers, including Snyder S Lance Inc (NASDAQ:LNCE) and Mondelez International Inc (NASDAQ:MDLZ), J&J has the cheapest valuation. Snyder’s-Lance is trading at around $25 per share, with a total market cap of $1.7 billion. It has the most expensive valuation at around 13.85 times EV/EBITDA. Mondelez, at $29 per share, has around $52 billion in total market cap. The market values Mondelez International Inc (NASDAQ:MDLZ) at 12.24 times EV/EBITDA.
Among the three, Mondelez International Inc (NASDAQ:MDLZ) is the most profitable company with the largest operating margin of 12.2%. While the operating margin of J&J is 10.8%, Snyder’s-Lance generated the smallest operating margin at only 6.72%. Income investors might like Mondelez International Inc (NASDAQ:MDLZ) the best as it pays the highest dividend yield at 3.5%, while the dividend yields of J&J and Snyder’s-Lance are 0.8% and 2.6%, respectively.
Foolish bottom line
J&J Snack Foods could be considered a good stock for investors to hold in the long run. However, among the three, I like Mondelez International Inc (NASDAQ:MDLZ)the best due to its juicy dividend yield, high profitability and reasonable valuation.
The article Is This Snack Food Company a Buy for the Long Run? originally appeared on Fool.com and is written by Anh HOANG.
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