Del Monte (DLM): Fruitful gains?

"I'm often drawn to companies that ?y 'under the radar' or are misunderstood by investors, such as Del Monte Foods (NYSE: DLM)," says Chuck Carlson.

In his The DRIP Investor, "The stock represents one of the more attractive low-priced plays among stocks offering dividend reinvestment plans."

"Most people recognize the Del Monte name and the company’s brands in the fruit and vegetable business. But did you know that Del Monte is also home to some of the most popular pet-food brands in the marketplace? 

"Pro?ts have been solid in recent quarters, and growth should continue in 2010. An improving ?nancial position and a rising dividend round out the appeal.

"In the consumer market, Del Monte carries the Del Monte, S&W, Contadina, and College Inn brands. Del Monte is either No. 1 or 2 in food/mass market share in fruit, vegetables, tomato, and broth.

"Pet-food brands include Meow Mix, Kibbles 'n Bits, 9Lives, Milk-Bone, Pup-Peroni, Snausages, and Pounce. Its assortment of leading brand names has provided solid earnings growth of late.

"Del Monte has easily beaten analysts’ earnings estimates in the last three quarters. Per-share pro?ts should be up at least 8% in ? cal 2010 ending in April. Per-share pro?ts should rise at least 10% in ?scal 2011. 

"Re?ecting its improved earnings outlook, the ?rm recently boosted its dividend 25%. The new quarterly rate is $0.05 per share, giving these shares an indicated dividend yield of 2.0%.

"Supporting the dividend should be steady earnings growth as well as further improvement in the ?rm’s ?nancial position. While the company does carry a fairly high long-term debt load at 49% of total capital, Del Monte has reduced its long-term debt load more than $400 million since 2007. 

"Del Monte is trading just off its 52-week high of $10.78 per share. These shares are not without risks. The debt load is a concern, especially if the market returns to the credit-crunch days of 2008.

"And consumer demand will likely remain stressed as a result of a poor employment environment. Still, the stock traded for nearly $13 per share in 2007, and I expect a retest of that level over the next 12-18 months.

"The stock has performed well this year, and further price gains are expected. The stock represents one of the more attractive low-priced plays in the DRIP world and should be considered by more aggressive investors. 

"Enhancing appeal is the company’s direct-purchase plan, which makes it easy for any investor to buy shares directly, the ?rst share and every share. Minimum initial investment is $200."