It's hard not to love earnings season in Smallville. For many names, quarterly results can represent the bulk of information that investors can access. Yesterday, two such names -- Farmland Partners Inc. (FPI) and net/net Richardson Electronics Ltd. (RELL) -- reported.
Farmland Partners, the largest farming REIT, has pulled back since merging with American Farmland but put up better-than-expected numbers on Thursday. Its earnings of two cents a share beat the one-cent "consensus" (just two analysts cover the stock, so it's not much of a consensus). Revenue jumped 90% for the quarter due mainly to the merger, and operating income was up 26%. FPI was up 6% for the day.
The quality of the company's land and crop variety has improved via the merger, but overall, investors have not been all that enamored with the story. Some have feared that the company's 5.5% dividend may need to be cut, but that sentiment appears to be overblown at this point.
While some of the luster has come off of farmland after years of being heralded as a must-own asset class and the stock of Farmland Partners has languished, I still want it in the portfolio over the long term. FPI owns 154,000 acres; with a current enterprise value (EV) of about $928 million, that yields an EV/acre value (another homegrown calculation I use as a benchmark) of just over $6,000. Each share of FPI represents about .0046 acres, so every 214 shares represents one acre. As a shareholder who reinvests dividends over time, you theoretically are increasing your exposure to farmland acreage each quarter by reinvesting the dividend -- at least that's how this simple mind views it.
Net/net Richardson Electronics, on the other hand, reported worse-than-expected earnings per share (a loss of one cent versus flat "consensus") and disappointing revenue ($37.4 million vs. $39.1 million). There's just one analyst who covers the company. If there was any good news here, it was that cash and short-term investments increased during the quarter to $61.7 million, or $4.80 per share, from $57.8 million, or $4.50 per share, last quarter, so cash flow was positive. That's a lot of liquidity for a stock that trades around $5.90. In addition, it yields 4.1%. Yet it continues to behave like a value trap.
Trading at just 0.72 times net current asset value, Richardson Electronics has an enterprise value (market cap plus debt minus cash) of just $12.5 million. This company could make for a very interesting acquisition. However, while there is a considerable amount of institutional ownership, there is one big factor standing in the way of the company's sale. Chairman, CEO and President Ed Richardson, 74, owns nearly all the Class B common shares, and with that position controls nearly two-thirds of the total voting rights. No transaction ever will get done unless Ed says so.
That's just one of the problems with dual share classes, and this stock has languished for years. Ed Richardson's control is the reason that the stock trades at such a deep discount.
It should be sold to the highest bidder.
In the meantime, I am happy to hang on and reinvest these dividends, too, and patiently (or stupidly) wait. As a somewhat new shareholder, I have not suffered as much as longer-term shareholders have.
Editor's Note: This article has been updated to correct an earlier version.
