Carmen Miranda would be proud. The mainstay of her wardrobe, the flamboyant hats adorned with bananas and other tropical fruits, has become an icon of show business memorabilia collectors. So too has one of the world’s largest purveyors of the centerpiece of her costume assumed the mantle of a favorite component of many bond portfolios.
Chiquita International Corporation (CQB) is emerging from the depths of its trading history to achieving buy status from many equity research analysts. The stock is currently trading at a level nearly 45% above its 52-week low and close to 50% of its high for the period.
Since issuing its surprise earnings report in September, when the company reported a loss more than 18 cents per share better than the consensus expectation, the company has attracted favorable research reports and strong buy recommendations from several analysts.
Chiquita derives over 40% of its revenues from the sale of bananas and banana related products. The balance of the company revenues comes from the sale of citrus fruits, melons, grapes, apples and tomatoes. Its Fresh Express line of packaged salads is the biggest seller of this line in North America.
In 2007, the company paid a $25 million fine for having made payments to terrorists in Columbia in return for protection of Chiquita employees. Chiquita discontinued operations in Columbia in 2004. An aggressive public relations campaign by the company has minimized the impact of the settlement on company sales.
The company’s balance sheet has improved recently due to a significant reduction in long term debt. The outstanding bonds of Chiquita that remain are rated investment grade, with a B- rating from Standard and Poor’s and a Caa2 from Moody’s.
Trading in Chiquita bonds has been active, with recent trades of bonds maturing in 2014 generating yields in excess of 16% at prices of around 65. Priced at this level, the bond will return a yield of nearly 65% to the first call at 103.75 in 2009, and a yield of just under 20% priced to the par call in 2012.
As with other high yield bonds, trading in Chiquita bonds is impacted by the market projection of a 20+% rate of default in this sector.
Chiquita, however, should benefit from a strong balance sheet, a restructured management team which is headed by senior managers all of whom have had extensive senior level positions in the firm or the industry and a product in the market which has performed well through a variety of economic cycles.
At these levels of return, investors in Chiquita bonds are well rewarded for the risks being taken.
This article was written by Jamie Dlugosch, contributor to InvestorPlace.com. For more actionable insight like this, go to: www.InvestorPlace.com. James F. Dlugosch contributed to this article.
