I think that your usage of EBITDA in the Dole plc analysis has led your valuation astray. Dole has considerable maintenance capital expenses as an asset-heavy business (particularly DFC) and if you track working capital over the last five years, you'll see that DFC has a considerable amount of that as well. These factors all depress cash flows considerable and EBITDA thus become unrepresentative for how the business operates. Another metric would probably be better to use.
Unlike you, I also believe that inflation is a big problem. While I do agree with your conclusion regarding Dole's ability to increase prices, I have an issue with menu lag costs. Prices are raised 3-6 months after the costs that arise from inflation make their way into the income statement. As such, Dole will always be 'chasing' inflation and won't be able to recoup lost margins. Raising prices in 2022 to offset inflation is great, but if these adjustments lag behind the newly incurred inflation costs in 2022 you won't see much margin improvement.
I'm skeptical of Dole's abilities to execute and see fair value to be around $15-18/shr, not the $40/shr your EBITDA valuation results in. I'd be happy to hear your thoughts on the concerns I raised above! Keep up the great work
Hi ValueSits,
I think that your usage of EBITDA in the Dole plc analysis has led your valuation astray. Dole has considerable maintenance capital expenses as an asset-heavy business (particularly DFC) and if you track working capital over the last five years, you'll see that DFC has a considerable amount of that as well. These factors all depress cash flows considerable and EBITDA thus become unrepresentative for how the business operates. Another metric would probably be better to use.
Unlike you, I also believe that inflation is a big problem. While I do agree with your conclusion regarding Dole's ability to increase prices, I have an issue with menu lag costs. Prices are raised 3-6 months after the costs that arise from inflation make their way into the income statement. As such, Dole will always be 'chasing' inflation and won't be able to recoup lost margins. Raising prices in 2022 to offset inflation is great, but if these adjustments lag behind the newly incurred inflation costs in 2022 you won't see much margin improvement.
I'm skeptical of Dole's abilities to execute and see fair value to be around $15-18/shr, not the $40/shr your EBITDA valuation results in. I'd be happy to hear your thoughts on the concerns I raised above! Keep up the great work
Have you taken a look the NYT acquisition. Currently down around 10%. Market thinks the acquisition isn't so good.
Thanks, Conor. I wish you all the best for the new year.