Analyzing Calavo Growers’ Newly Added Risk Factors

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California-based Calavo Growers (CVGW) is a global farm products company that sells fresh avocados and other fruits. It also has a food processing unit. The company has been in business since 1924. It recently appointed Brian W. Kocher as its new CEO to replace James Gibson, who retired in September. Kocher, a former CEO of Castellini Group of Companies, will start his new role at Calavo in February 2022. Steve Hollister is currently serving as the company’s interim CEO.

Calavo’s earnings report shows revenue increased 17% year-over-year to $273.4 million in Fiscal Q4 2021 ended October 31, surpassing the consensus estimate of $263.4 million. The company posted an adjusted loss per share of $0.08, better than the consensus estimate of an $0.11 loss per share. It posted an adjusted profit per share of $0.34 in the same quarter last year.

Calavo ended Q4 with $141.2 million of liquidity, consisting of $2.9 million in cash and the rest in borrowing capacity available under a credit facility. Total outstanding debt stood at $44.8 million at the end of the quarter.

The company recently distributed an annual cash dividend of $1.15 per share. It has paid annual dividends consistently since going public in 2002. Calavo stock currently offers a dividend yield of 2.76%.

With this in mind, we used TipRanks to take a look at the newly added risk factors for Calavo Growers.

Risk Factors 

According to the new TipRanks Risk Factors tool, Calavo Growers’ main risk category is Production, representing 39% of the total 33 risks identified for the stock. Ability to Sell and Legal and Regulatory are the next two major risk categories, accounting for 18% and 15% of the total risks, respectively. Calavo recently updated its profile with seven new risk factors across the various categories.

The company informs investors that Mexican tax authorities are demanding $147.6 million in back taxes related to a 2013 tax audit. Additionally, the authorities have determined that the company owes $5.8 million to its employees. The dispute has led to liens being placed on the bank accounts and fixed assets of Calavo’s Mexican unit. The company cautions that its operating results and financial condition could suffer significantly if the tax dispute is not resolved in its favor.

Calavo tells investors that it is experiencing a shortage of qualified labor, particularly in the plant production segment. It warns that the labor shortage is already driving up costs and may have a material adverse effect on its operating results if the problem continues for an extended period.

Calavo says that the costs of petroleum products, packaging materials, and other items and services used in its operations have been rising as the economy recovers from the COVID-19 pandemic. In response to the rising costs, Calavo plans to increase the prices of some of its products. However, it cautions that customers may reject the price increases, which could result in a significant loss of sales or continued pressure on profit margins. If compressed profit margins continue or sales decline as a result of price increases, Calavo warns that its ability to invest in driving future growth may be hampered.

The Production risk factor’s sector average is 17%, compared to Calavo’s 39%. Calavo’s stock has declined about 39% since the beginning of 2021.

Analysts’ Take

Jefferies analyst Robert Dickerson recently reiterated a Hold rating on Calavo stock and assigned it a price target of $47, which suggests 10.43% upside potential.

Consensus among analysts is a Moderate Buy based on 1 Buy and 1 Hold. The average Calavo Growers price target of $53.50 implies 25.70% upside potential to current levels.

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