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Bull of the Day: Calavo Growers (CVGW)

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Calavo Growers, Inc. (CVGW - Free Report) is cashing in on record avocado and fresh food demand. This Zacks Rank #1 (Strong Buy) just reported a record second quarter across all of its segments.

Calavo Growers is a Santa Paula, California avocado and fresh produce grower of a variety of products including tomatoes and tropical produce. Its food business makes and manufactures guacamole, guacamole hummus and salsa under the Calavo brand name.

Its Renaissance Food Group also makes lifestyle products through fast-growing brands such as Garden Highway and Chef Essentials.

A Big Beat in the Fiscal Second Quarter of 2017

On June 6, Calavo reported its fiscal second quarter results and easily beat the Zacks Consensus Estimate by 15%. The company earned $0.74 versus the Zacks Consensus of $0.64.

It was a record second quarter with virtually all key metrics reaching new all-time, single-period highs.

Revenue rose 23% to $270.2 million while gross margin jumped 35% to a record $36.3 million, or 13.4% of total revenue. That was up from 12.2% of total revenue in the year ago quarter.

Each of its segments saw double digit growth.

In the Fresh segment, which includes avocados, revenue jumped due to focus and execution of the Calavo team combined with record consumer demand which is exceeding available industry supply.

The avocado crop, industry-wide, has been smaller this year than last year. Calavo, for instance, packed just 4.8 million total units in the quarter compared to 6.4 million total units in the year ago quarter due to the smaller avocado crop.

But that supply-demand imbalance has also meant higher avocado prices which is why revenue remained so robust.

In the Renaissance Food Group segment, revenue rose by 24% due to the addition of new retail customers, added divisions of existing customers, penetration into newer geographic markets and the broadening of product capabilities.

It continues to expand its plants and add capacity which impacted gross margin in this segment in the quarter.

The Future's Bright

Avocado toast has been all the rage for the past year and while this food item gets mocked, it represents the growing demand for avocado in a host of foods and settings.

Avocado isn't just limited to guacamole in the local Mexican restaurant anymore.

Globally, more consumers are eating avocado than ever before which is also putting pressure on prices.

Calavo re-affirmed its full year outlook, stating that it was on track to achieve double-digit growth in revenue and gross margin dollars. It still expects to post record earnings per share for the fiscal year.

The analysts are bullish too. One estimate has been raised for the full fiscal year in the last week which has pushed the Zacks Consensus Estimate up to $2.53 from $2.46. That is earnings growth of 16%. Calavo made just $2.18 last year.

Fiscal 2018 is also looking good with another 15.4% earnings growth.

Shares Leap to 3-Year High

The shares have been on quite a tear with all the good news this year.

They ran up to 3-year highs before giving back a little bit of the recent gains.

They're not cheap. Calavo trades with a forward P/E of 27 but you're buying the growth, not the value.

As an added bonus, Calavo does reward shareholders with a dividend. It's currently yielding 1.3%.

For investors looking for a way to play the hot avocado and fresh food trend, Calavo should be on your short list.

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