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Friday, March 27, 2009

VIFL - A Stock To Watch in 2009

I bought VIFL this week on my alert at $1.35-$1.40 See Blog Post - Here is my reasoning:

VIFL - Food Technology Service, Inc.- 2.8m Shares outstanding and 2m Float per Bloomberg

Food Technology Service, Inc. engages in the ownership and operation of irradiation facility located in Mulberry, Florida. Its irradiation facility uses gamma radiation produced by Cobalt 60 to extend the shelf life of and/or disinfect fruits, vegetables, and meat products; and for the sterilization of medical, surgical, pharmaceutical, and packaging materials. The company provides contract sterilization services to the medical device, food, and consumer goods industries. In addition, it irradiates packaging, cosmetic ingredients, horticultural items, and consumer goods. The company was founded in 1985 and is based in Mulberry, Florida.

Company Website

VIFL is a small ($2.4m revenue run rate) yet profitable company ($0.07 EPS for Q3). Read More Here

1) The Company well positioned to profit on food and medical device irradiation.

Food Technology Service, Inc. CEO Dr. Richard Hunter said, “I am pleased with our growth in revenue and income during this year. Customer demand for medical sterilization continues to grow and there is increasing interest in food irradiation. The Company remains well-positioned to take advantage of that interest as food producers recognize the food-safety benefits of irradiation.” Read More here

Management attributes increased revenue to a growing customer base that requires irradiation of products on a regular basis. The majority of revenue growth is occurring in medical sterilization but strong interest has developed in food irradiation due to recent food recalls and illness outbreaks. Read More Here

While the medical device irradiation business appears to be strong and growing, the food irradiation business could be poised to take off. The Obama administration is focused on food safety and the irradiation debate is heating up. Read More Here

JOURNAL OF AMA MAR 5 2009 Coming to Grips with Foodborne Infection — Peanut Butter, Peppers, and Nationwide Salmonella Outbreaks
Dennis G. Maki, M.D.

Finally, we already have the capacity to improve food safety by adopting a technology that can protect against safety breakdowns during production, preparation, or cooking: routine irradiation of the final commercial product in the case of poultry and hamburger, processed foods containing eggs or milk, and selected leafy and other vegetables eaten raw could greatly reduce the incidence of bacterial foodborne disease. Research has shown that irradiation kills pathogens or markedly reduces pathogen counts without impairing the nutritional value of food or making it toxic, carcinogenic, or radioactive.5 Food irradiation has been endorsed by the World Health Organization, the CDC, the FDA, the USDA, the American Medical Association, and the European Commission's Scientific Committee on Food and is already used in many other countries. In the United States, irradiation of fresh meat has been allowed since 1997; last August, the FDA approved the irradiation of iceberg lettuce and spinach. The CDC has estimated that irradiation of high-risk foods could prevent up to a million cases of bacterial foodborne disease each year in North America. I believe it is time to launch a major effort to gain public acceptance of irradiation of high-risk foods. It is time to stop reliving history.

2) The FDA recently approved lettuce and spinach for irradiation and some large producers are considering it Read More Here

The industry group wouldn’t name salad suppliers ready to start irradiating. But it expects niche marketing to trickle out first - bags of spinach and lettuce targeted to high-risk populations such as people with weak immune systems “who right now may be afraid to eat uncooked produce,” said GMA’s chief science officer Robert Brackett.

“It’s one big step forward in improving the safety of fresh produce,” he added.

California-based produce giant Dole Food Company confirmed it is considering irradiated lettuce. “We are currently doing extensive testing with irradiation and it looks to be very promising,” said spokesman William Goldfield.

3) VIFL is considered a leader in irradiation and one of a handful of facilities that are approved for food irradiation and is considered a leader in the field

"But most U.S. irradiation facilities treat medical products, and only a handful are set up for food."

"You'll see gradual adoption and early adopters … who convince others to try," says Richard Hunter, CEO of Food Technology Service, a 13-employee food-irradiation company in Florida that's considered a food-irradiation leader but which relies on medical devices for 70% of its revenue.

Read More Here

4) VIFL has been expanding capacity and expected growth before the new FDA approval for lettuce and spinach

As previously mentioned, the Company installed additional Cobalt during the second quarter at a cost of approximately $530,000. The Company paid cash for this Cobalt. Management anticipates increased revenue during the remaining quarters of 2008 based on growing demand for irradiation services. Read More Here

Summary : The possibility exists that in the future the FDA will expand this initiative to other vegetables and ready to eat foods. However, keep in mind that food irradiation is an intensely debated subject and widespread rapid adoption is unlikely. Also, some customers may not want to advertise their use of irradiation. Additionally, the challenge with all small caps is whether or not the management is ready to get a facts based story to the street to enhance shareholder value or play the small meek Company that only releases earnings and doesn't keep the street updated on contract wins and other good news.

That being said, with the small share structure of VIFL and the already profitable existing business, it would not take much for this Company to throw off some growth and strong EPS. Food borne illness outbreaks as well as contract announcements could bring strong momentum to low float VIFL. At any rate it is undervalued here in the $1's. Depending on circumstances playing out (contracts, outbreaks), it is my opinion that VIFL could become a strong momentum play in the future that could take it much higher.

Valuation: VIFL alluded that EPS should be good this quarter all the way back in last year's 10-k (see below)

The EPS comparable they are up against is nil - If they can do $0.07-$0.10 EPS this quarter (They did $0.07 EPS last quarter) then they will have a $0.28-$0.40 run rate.

10 PE $2.80-$4.00
15 PE $4.20-$6.00
20 PE $5.60-$8.00

With the potential for big growth or major theme stock if irradiation adoption for food continues or new outbreaks dominate the news. Also they currently have a IBD EPS rating of 95.

I never buy and hold into earnings and never recommend it. But here I did with a small position and would add if earnings confirm my assumptions.

From last years 10-K

Although there is no assurance, management anticipates continued profitability during 2008 with revenues exceeding those in 2007. The majority of revenue increases are anticipated for the third and fourth quarters after the Company installs additional Cobalt to increase capacity. Management does not anticipate any significant increases in actual processing costs or general and administrative expenses during 2008. 10-K

And in the last 10-Q:

Management anticipates increased revenue during the remaining quarter of 2008 based on growing demand for irradiation services. 10-Q

No comments:

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