Friday, May 1, 2009
(Cont'd from above)...

Jim (cont'd):   

...America's largest dairy producer by revenue, which you may know as Horizon or Silk... Meadow Gold, Tuscan, Garelick Farms, Pet and Land-O-Lakes... Yep, a virtual hammerlock on the milk selection in every single supermarket in the country...

Which is why we have built the first ever "Milk-amid"... [Jim then shows a pyramid made out of Dean Foods' brand milk containers, in the shape of a pyramid on his set]...

If you have ever bought milk or butter, you have probably bought a Dean Foods product.

DF has a bunch of bonds coming due in two weeks, on May 15th. Or, let me give you a little Wall Street jibberish... The company has 122.8 million in 6 and 5/8 Senior Notes, maturing on May 15th.

Now, unfortunately for DF, because the credit markets are still "sour" to stick with the milk analogy, the company had a hard time trying to refinance, or trying to raise capital, or raise new debt, to pay off those notes that are coming due. I can tell you that you could refinance your home mortgage much more easily than America's milk company can refinance its debt.

DF doesn't have anywhere near enough cash to cover the debt either... nor does it have any wealthy and generous relatives to fall back on for a quick under-the-table loan...

That really left only one choice...

So, today, when DF reported an okay quarter, with earnings coming in at 52 cents - 10 cents better than the Street's consensus - it also announced an equity offer.

In order to raise money to pay off the debt, the company is selling 22.5 million new shares, plus an extra 3.375 million of what's known as an "over allotment" option for the offering's underwriters.

Now, here's what I want you to do...

I want you to call your broker, because you want in on this secondary, especially for the $1.77, 8.55% battering this stock took today... yeah, it was off that much... both because of the equity offering and because management reiterated full-year guidance that fell short of what the Street was looking for...

Hey, bad news - its outlook - is now in the stock... so I don't mind telling you to get into this offering. That's right, you need to call your broker though... You have to get it from a broker. You have to do business and get this secondary offering...

Now, I like DF, even without this offering, but I'm telling you that missing out on it would be a crime against rapacious late-stage capitalism...

Anyway... What's so great about this offering?... Because it could very likely turn out to be a great bet...

The last three offerings in the stock market that looked like this one made their investors a decent amount of money... instantly! Well, almost instantly...

On April 28th, Northern Trust Corp. (NTRS), a bank, priced a $750 million equity offering at $50. The very next day, it closed at $55... a 10% gain... and the stock is still up 5.6% from the offering price. That's a huge win for those who participated in a really short time...

Also, on April 28th, United States Steel Corp. (X) priced its own 18 million share equity offering at $25.50 a share, and ended up selling 23.6 million shares, nearly one-third more than they expected... X is now at $28.56! You would have had a 12% gain in just three days...

How about yesterday?... Textron Inc. (TXT) priced a 19 million share equity offering at $10.50, then sold 1.7 million shares than it expected... a sign that a lot of people wanted in... The stock is now at $10.94, but it was actually at $11 at one point, so it had a nice gain.

Do you get the picture... starting to feel a little less doubt?...

Don't worry... You can still subscribe to the DF secondary. The last three of these happened under similar circumstances, although those companies had inferior financials, compared to DF, and they did great...

This kind of deal is precisely what I'd be putting in for at my old hedge fund, and I want you into it....

I am salivating over this "got milk?" trade... and I want you in on it...

DF is about more than just a cheap, one-time break to buy its stock for less than you should be able to do though...

First of all, the big worry about this stock had been its debt... its balance sheet... DF had a great quarter last quarter, before the one it reported today... but its stock didn't go up...

Why?... Worries about the balance sheet...

With this offering, these fears... the fears that have really kept the stock back... These fears are going away...

Second...

The quarter that DF just reported... even though the dairy's producer sales came in lower than expected... operating incomes were better than expected, thanks to the company's impassioned cost cutting, along with lower input costs and volume growth... And we know now from Dow Chemical (DOW), International Paper (IP), and Starbucks (SBUX), and so many others this week, that money managers are snapping up these cost cutters wherever they can find them.

Raw milk prices?... How about this?... Down 50% from their peak... which, all by itself, could increase the company's gross margins by as much as 300 basis points (i.e., 3%).

Also DF has been closing plants, laying off workers and improving productivity...

Like the companies I talked about last night, DF has been able to make itself substantially more profitable by cutting costs... and who knows how much more this leaner, meaner milk machine will be able to make when the economy recovers and sales improve, at least mildly... And, since its first full-year guidance came in below what the Street was looking for, the earnings risk has been pretty much been taken out of the stock.

I think Dean Foods' (DF) has some "UPOD" in store for the analysts... That's called "under promise" on the numbers, and "over deliver" on the earnings...

Here's the bottom line...

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