10 Stocks With Explosive Earnings Growth: No 3 Ralcorp (RAH)

July 13, 2009 5:26 PM EDT

In the current difficult macroeconomic environment it is hard to find companies that are earning a meaningful profit, let alone growing earnings. But these 10 stocks have been rewarding investors with explosive earnings growth and stock performance to boot. You can track the entire series here.

Number 3: Ralcorp Holdings Inc. (NYSE: RAH)

Ralcorp produces Post branded cereals, a variety of value brand and store brand foods (private label) sold under the individual labels of various grocery, mass merchandise and drugstore retailers, and frozen bakery products sold to in-store bakeries, restaurants and other foodservice customers.

Ralcorp's products include: ready-to-eat and hot cereal products; nutritional and cereal bars; store brand and branded crackers and cookies; foodservice, store brand and branded frozen griddle products (pancakes, waffles, French toast and custom griddle products) and biscuits; foodservice and store brand breads, rolls and muffins; store brand wet-filled products such as salad dressings, mayonnaise, peanut butter, syrups, jams and jellies, and specialty sauces; and store brand and value branded snack nuts, snack mixes, corn-based snacks and chocolate candy.

In August 2008, Ralcorp acquired the Post brand of ready-to-eat cereals from Kraft Foods Inc. (NYSE: KFT). Post Foods manufactures and markets ready-to-eat cereals under several brand names, including the third highest revenue brand of ready-to-eat cereal, Honey Bunches of Oats.

Ralcorp's strategy is to grow their businesses through increased sales of existing and new products and through the acquisition of other companies. Since 1997 Ralcorp's has acquired twenty companies. Ralcorp typically pursue companies that manufacture predominantly store brand or value oriented food products.

Earnings Growth:
In the 2nd quarter of 2009, Ralcorp's EPS, ex-items, were $1.10 compared to $.86 last year, a 28% increase. 2Q net earnings were $70.2 million compared to $38.5 million last year.

Earnings Prospects:
Analysts on average expect Ralcorp to earn $4.38 per share in fiscal year 2009. This would be a decline from fiscal year 2008 diluted EPS of $5.38, but 2008 included a $2.32/share gain on forward sale contracts. Excluding this gain, EPS for 2008 would have been $3.06, which suggests 43% upside in 2009. Next year (2010), analyst see Ralcorp's EPS at $4.82 which would suggest upside of 10% from the expected 2009 number.

In addition, with consumers moving to private label and value brands at the supermaket this will have a direct benefit for Ralcorp.

Stock Performance:
Shares of RAH are up 4.6% YTD, versus the 0.2% slide in the S&P 500. Over the last year, shares of RAH are up 21.6% versus the 27.3% slide in the S&P 500. Over the last five years, shares of RAH are up 78.9% versus the 19% slide in the S&P 500.

Follow The Entire Series: 10 Stocks With Explosive Earnings Growth 2009

Past Series: 10 Stocks Taking Care of Investors 2009

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