2024-02-18 03:22:49 ET
Summary
- The SENEA investment narrative has shifted to focus on its earnings power rather than its balance sheet value.
- However, over the next 12–18 months, I think the stock will largely be driven by Seneca's sales volume.
- Based on commentary from Del Monte Pacific and anecdotal evidence, I see a compelling case to be made that sales volume will stabilize into FY2025.
- Further, recent insider purchases over the past few months may provide some confirmation that volumes have begun to stabilize.
- This volume stabilization scenario creates a credible case for the stock to reach $70, its FIFO-adjusted NCAVPS, over the next 12–18 months.
Since my last update on Seneca Foods Corporation ( SENEA ), the investment narrative has shifted from having a primary focus on the value on its balance sheet to a focus on its earnings power. Bulls are looking at the more favorable industry structure to support their view that Seneca’s recent higher margins are sustainable and that the elevated inventory and resulting NCAVPS creates a margin of safety for investors, while bears are looking at declining volumes and declining FIFO margins to support their view that its high margins are unsustainable and that the elevated inventory on its balance sheet, along with the high debt incurred to acquire it, will lead to financial instability. There are credible arguments to be made for both sides....
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Seneca Foods: A Look At Sales Volume Trends