This Foodmaker May Start Cookin'

When money manager Ed Wachenheim III saw Rykoff-Sexton shares tumble from 21 in February to 15 in June, he started buying. Companies such as Rykoff, which are "strong in solid businesses that come into disfavor because of temporary earnings adversities," are the stocks to buy in this kind of market environment, says Wachenheim, chairman of Greenhaven Associates, which manages some $475 million. "We like to buy straw hats in the winter."

Wachenheim notes that Los Angeles-based Rykoff, the nation's second-largest publicly owned food-service company, with revenues of $1.5 billion, is a bargain compared with the industry's No. 1 player, Sysco, where revenues top $10 billion. Wachenheim says Rykoff, which trades on the Big Board, sells at about its book value of $16 a share, while Sysco trades at four times its $6 book. And, he adds, Rykoff is cheap based on the revenues-to-market-value ratio: Rykoff sells at 8.4 times, and Sysco sells at only 2.1 times.

That's not all. Earnings, which have been squeezed by declining food prices in the past two years, are ready to turn up strongly, says Wachenheim. He believes Rykoff will benefit when the economy takes off. It supplies 40,000 products to 106,000 customers such as restaurants, hospitals, and schools. Foods account for 66% of its sales, cookware and dishwashing equipment 18%, and janitorial supplies 16%.

Wachenheim sees profits rebounding from fiscal 1992's $1.09 a share, to $1.45 in the fiscal year ending Apr. 30, 1993, $2.30 in 1994, and $3 in 1995. Based on these estimates, he thinks the stock could be worth 45 a share in 12 to 18 months.


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