Value Priced Stocks: Clearwater Seafoods

Nova Scotia-based Clearwater Seafoods is one of 10 food stocks that we regularly examine on The Back Page. Since we published our December 13, 2013 issue, its shares have inched up by just 0.4 per cent. This and its fast-growing earnings mean that the share prices are making Clearwater Seafoods look like a good bargain stock. Clearwater remains a buy for long-term share price gains and, now, dividends.

Clearwater is vertically integrated. That is, it’s involved in all stages of production from harvesting seafood to delivering it to customers. The company is the largest holder of shellfish licenses and quotas in Canada. It also delivers scallops, lobster, clams, coldwater shrimp, crab and groundfish worldwide.

Clearwater is optimistic about its long-term outlook. It notes that global demand for seafood is growing faster than its supply. This is particularly true of “wild” seafood. The company writes that it’s “well positioned to take advantage of this opportunity because of its licenses, premium product quality, diversity of species, global sales footprint, and year-round harvest and delivery capability.” Key stock High Liner Foods, by contrast, must pay the going rate for seafood.

Two other trends should keep up the demand for seafood. First, seafood is prized in some emerging countries, especially Asia. As Asian middle classes grow, so should their consumption of seafood. Second, fish is seen as a healthier alternative to, say, the consumption of red meats such as hamburgers and steaks.

Clearwater looks well priced. For one thing, it has remained profitable since 2011. Based on the growth in its earnings per share, it has a MGI (Marpep Growth Index) of 1.7. This suggests that the shares are undervalued.

For another thing, in 2014 Clearwater’s earnings are expected to jump to 58 cents a share. This gives the shares an attractive forward price-to-earnings ratio of 12.9 times. Next year, its earnings are expected to advance by another 15.5 per cent, to 67 cents a share. Clearwater “plans to position the company for accelerated growth and profitability both organically and through future acquisitions.” But we would first like to see its net debt-to-cash-flow ratio from the current level of 2.7 times.

Clearwater’s price-to-cash-flow ratio is also an attractively-low 4.9 times. Last year’s cash flow of over $77 million suggests that it will at least maintain its dividend, which it introduced last year.

Clearwater is a bargain stock and remains a buy for long-term price gains and dividends.

TSX—CLR; Rating: Average; Sector: Consumer; Dividend: $0.10; Yield: 1.3%; O/S shares: 51 million; MRI: 9.6; MGI: 1.5; Five-year return:—; 52-week range: $9.20—$4.14; Net debt-to-cash-flow: 2.7; ROE: 24.7%; Directors own: 69.8%; T: 902-457-8181;


The Investment Reporter, MPL Communications Inc.
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