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Growth & Income

Calavo Growers, Inc. (CVGW - Snapshot Report) recently delivered a 19% positive earnings surprise driven by double-digit sales growth and an expanding gross margin. Analysts unanimously raised their estimates for 2011 following the strong quarter. It is a Zacks #2 Rank (Buy).

The stock appears to be reasonably priced, and althought the company is relatively small, it offers an attractive 2.4% dividend yield.

Company Description

Calavo Growers, Inc. engages in the procurement and marketing of avocados and other perishable foods and the preparation and distribution of processed avocado products. The company delivers its food products to food distributors, produce wholesalers, supermarkets, and restaurants around the globe.

The company is headquartered in Santa Paula, California and has a market cap of $331 million.

Operating Income Up 135%

Calavo reported fourth quarter results on January 3. Earnings per share came in at 32 cents, beating the Zacks Consensus Estimate by 19%. It was double last year's Q4 EPS of 16 cents.

Net sales increase 32.5% year-over-year. The fresh products segment rose 35% as a result of an 80% increase in avocado volume. Revenue in the CalavoFoods business segment grew by 16%.

The gross margin expanded nearly 200 basis points from 11.4% to 13.3% of sales. Meanwhile, operating income grew an impressive 135% as the company was able to leverage its selling, general and administrative expenses.

Outlook

In the Q4 press release CEO Lee Cole stated, "I anticipate another strong year for Calavo in fiscal 2011. The fresh avocado pipeline is expected to be substantial."

All three analysts revised their estimates higher for 2011 following the strong quarter. The Zacks Consensus Estimate is $1.36, representing 12% EPS growth over 2010. The 2012 consensus estimate is $1.61, equating to 18% EPS growth. It is a Zacks #2 Rank (Buy) stock.

Dividend

Calavo recently raised its annual dividend 10% to 55 cents per share. Since going public in 2002, the company has raised it at a compound annual growth rate of 13.5%.

It yields an attractive 2.4%.

Valuation

Valuation looks attractive for Calavo with shares trading at 16.6x forward earnings and a PEG ratio of 1.1. Its price to sales ratio of 0.8 is below the peer group multiple of 1.0.

Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.

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