A Double Boost For A FoodmakerBy
Who's afraid of foreign competition? Certainly not Midwest Grain Products, a major producer of wheat gluten, starch, and alcohol. In spite of stiff competition from Europe and Australia, Midwest is thriving and making money. And it will spend about $75 million to double its productive capacity over the next three years. That has turned some pros very bullish on Midwest.
"That means earnings could double as well, along with the planned capacity growth," says one New York money manager who has scaled up his buying. For a company that's practically debt-free with strong prospects of sharp earnings growth, the stock, now at 23, is way undervalued, says this pro. He thinks it will double in two years.
Food analyst Ron Strauss at William Blair & Co. agrees. Midwest, he says, should benefit not only from the expected rise in demand for food products but also from the jump in demand for fuel alcohol because of the Clean Air Act.
Most cities are required to add oxygen to gasoline in order to cut auto emissions. Fuel alcohol, or ethanol, is one of the by-products of gluten and starch. An ethanol/gasoline blend is an effective way to increase the oxygen content of gasoline, says Strauss. Should ethanol demand strengthen, he adds, "there could be a spillover effect in the pricing of other alcohols, including beverage and industrial alcohol, which are also by-products in producing gluten." Strauss sees earnings of $1.65 a share in the year ending June 30, 1993, vs. $1.38 in 1992.
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