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Seneca Foods (NASDAQ: SENEA), Small-Cap Value With Growth In The Forecast

Thursday, July 9, 2020 | Thomas Hughes
Seneca Foods, Small-Cap Value With Growth In The Forecast

Consumer Staples Are In High Demand

If I’ve said it once, I’ve said it a dozen times since the pandemic struck, in one form or another. Consumer staples are a great play for these troubled times and a sector more than worth your attention. Names like Clorox, Conagra, Campbells, and Kimberly-Clark are reporting robust demand, better than expected results, positive outlook, and a certain amount of “stickiness” when it comes to COVID-inspired trends.

Seneca Foods (NASDAQ: SENEA) is by no means a major player in the packaged foods space but is well-established and receiving the same benefits as its larger cousins. Seneca Foods just reported earnings a few days ago and shares are on the move because of it. The last few days have seen share prices pop from a recent low with indicators in support of further gains.

The Results Are In

Before I move on I want to establish a couple of things first. Number one, for the purposes of this article I will be limiting myself to the SENEA Class A shares. If you are interested, it is possible to buy Seneca Class B shares at a discount to the Class A shares but that is not of interest to me. Second, Seneca has 0 analysts behind it, that’s not so much a problem though because of high insider and institutional ownership. Combined, insiders and institutions account for 73% of the float.

There is a risk of dilution, Seneca’s float is only 68.5%, but I don’t see a dilutive offering happening any time soon. The company is well-capitalized, has low debt obligations, and booming business. Seneca Foods began a major turnaround in 2018 that is only gaining momentum now. Fourth-quarter revenue, calendar 2Q (the pandemic quarter) surged 17.2% YOY after gaining 10% in the previous year.

EPS for the quarter came in at $2.27 per share, reversing a $0.90 per share loss seen in the previous year. The gains in both revenue and EPS are driven by a combination of higher prices, product mix, and sales volume attributable to the pandemic. Breaking it down even further, most of the strength was seen in canned veggies and the B&G Foods subsidiary, a holding company for pickles and relishes.

“During Fiscal 2020 we completed two years of restructuring that included plant consolidations, divestitures including exiting the canned fruit business. As expected, the Company improved its margins when compared to the prior year. In addition, we had an unexpected sales lift in the last month of the fiscal year as consumers pantry loaded as a result of the coronavirus pandemic,” stated Kraig Kayser, President and Chief Executive Officer.

The Technical Outlook: Bullish Activity In An Undervalued Stock

Seneca Foods earnings reports sparked a bullish movement that is driven by both the positive outlook and the valuation. I’ve already established this company is well-positioned for growth and profits in the coming years. In terms of its value, the market has yet to price in the company’s turnaround and outlook for profits now the turnaround is complete.

This week’s price action has the stock trading just below the top of a trading range established over the past three months. While resistance appears strong, it is weakening and the candles are bullish. The pop from the short-term moving average is creating a bullish flag pattern that is supported by the indicators. Both stochastic and MACD are bullish and moving higher with plenty of room to run. That, and the fact MACD is on the cusp of setting an extreme peak, tell me resistance will soon fall. When that happens investors can expect this stock to move up to restest the all-time highs in the $42 range.

Seneca Foods, Small-Cap Value With Growth In The Forecast

Companies Mentioned in This Article

CompanyBeat the Market™ RankCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Seneca Foods (SENEA)1.0$42.30-0.8%N/A5.46N/AN/A
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