Landec Corp.

Food packaging maker Landec Corp. (LNDC - Snapshot Report) has an impressive streak of positive quarterly earnings surprises, which it continued earlier this month with a nearly 44% beat in its fiscal second quarter. Meanwhile, the stock price rocketed roughly 61% last year.

Given its flurry of earnings beats, double-digit earnings growth projections, healthy growth in the fresh-cut produce category, continued product innovation and synergies from an acquisition, this Zacks Rank #1 (Strong Buy) deserves some attention from aggressive growth investors.

Seventh Straight Beat

On January 2, Landec reported a positive earnings surprise of 43.75% for its fiscal second quarter. Adjusted earnings of 23 cents per share comfortably beat the Zacks Consensus Estimate of 16 cents, marking the seventh consecutive positive surprise.

Revenues surged 41% year over year to $114.7 million, driven by a strong performance from the company’s fresh-cut specialty packaged food subsidiary Apio, Inc.'s value-added business. GreenLine Holding Company, which was acquired by Apio in April 2012, contributed $24.3 million in revenues. Landec said that GreenLine integration is progressing well and is ahead of its original plan.

By business lines, total revenues from Apio shot up 50% year over year to $106.7 million, boosted by new products and gains in the fresh-cut vegetable category. However, revenues from Lifecore Biomedical, the company’s biomaterials unit, slipped 16% to $7.7 million due to a delay in shipment and the termination of its licensing agreement with Monsanto Company (MON).

The company raised its revenues and profit growth forecasts for fiscal 2013. It now expects revenues to rise 33% to 38% year over year, compared with its earlier forecast of 30%. Moreover, it sees net income growth of 60% to 70%, up from its prior projection of 25% to 35%.

Earnings Estimates Moving Higher

Two out of three estimates have moved higher for both fiscal 2013 and fiscal 2014 over the last 7 days. As a result, the Zacks Consensus Estimate for fiscal 2013 has gained 12% to 73 cents per share, indicating an estimated annualized increase of roughly 50%.

For fiscal 2014, the Zacks Consensus Estimate rose 4% in 7 days to 88 cents per share, representing a projected year over year rise of nearly 20%.

Reasonable Valuation

Landec is currently trading at a forward P/E of 16.45x, which is higher than the peer group average of 14.85x. The price-to-book of 1.97x and the price-to-sales (P/S) ratio of 0.82 are also higher than their peer group averages. However, the premium valuation is justified given the healthy earnings trajectory.

The stock has begun to catch up with the rising earnings estimates of late, signaling the potential for further upside.

Landec Corporation makes and distributes polymer products using its proprietary polymer technologies for food and biomaterials markets. The company’s Apio unit is a leading provider of fresh-cut specialty packaged vegetables in North America. Its Lifecore subsidiary is a premium supplier of hyaluronan-based materials and medical products for ophthalmic, orthopedic, veterinary and other medical applications. Landec, which has a market cap of roughly $311 million, distributes its products leveraging its dedicated sales and marketing resources globally.

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