Analyzing Small Cap Stocks: Alico

The Key Takeaways for Alico and Small-Cap Stock:

1. Alico’s normalized EBITDA stands at $22 million.
2. The company holds substantial land assets, positioning it as one of the largest citrus growers in the U.S.
3. Alico’s stock is currently trading at $24.50, with a potential breakup value of $51 per share.

Alico, Inc. (NASDAQ: ALCO), headquartered in Fort Myers, Florida, operates in the agricultural sector, specifically focusing on citrus production. Despite the inherent volatility in its industry due to weather conditions, Alico’s vast land holdings and strategic agreements make it a notable small-cap stock worthy of closer examination.

Alico reported a revenue of $40 million last year, a figure influenced by adverse weather events. Over the past five years, the company has experienced a negative compound annual growth rate (CAGR) of 13.3% in revenue. However, its normalized EBITDA stands at $22 million annually, indicating the company’s ability to generate consistent earnings before interest, taxes, depreciation, and amortization, despite yearly fluctuations.

Alico’s current share price is $24.50, with outstanding shares totaling 7.6 million. This gives the company a market cap of approximately $186 million. The stock’s daily trading volume is around 654,000, reflecting moderate liquidity for investors.

Alico’s primary business involves selling oranges for juice production. The company has strategically mitigated price volatility through long-term contracts. Notably, Alico has secured a three-year agreement with Tropicana, ensuring that 65% of its output is sold at prices 33% to 50% higher than previous contracts. This agreement provides a stable revenue stream and reduces exposure to fluctuating market prices.

Alico’s extensive land holdings are a significant asset. The company owns over 54,000 acres of land in Florida, making it one of the largest citrus growers in the United States. The potential breakup value of this land is estimated at $51 per share, which is more than double the current trading price. This valuation is based on selling the land and 50% of the farm buildings at their depreciated level, even after accounting for taxes on the gain. Alico’s management has indicated plans to sell portions of this land in the future, presenting a compelling investment opportunity for those willing to wait for the land value to materialize.

The company’s revenue is highly susceptible to weather conditions. Adverse weather, including hurricanes and cold weather, has historically impacted citrus output, leading to revenue volatility. However, Alico’s long-term contracts provide some cushion against these unpredictable factors.

Last year, Alico reported a negative leverage free cash flow of $39 million, primarily due to significant reinvestments into the business. These capital expenditures (CapEx), amounting to $18 million, are essential for maintaining and expanding operations, particularly in a capital-intensive industry that relies heavily on machinery and potential land acquisitions.

Alico’s land assets, strategic agreements, and consistent EBITDA make it an intriguing small-cap stock. Despite weather volatility and high CapEx challenges, the potential land value and high demand for residential land in Florida enhance its investment appeal.  Want to be updated on Cannabis, AI, Small Cap, and Crypto? Subscribe to our Daily Baked in Newsletter!