Dole IPO - Is This Stock a Buy After the Total Produce Merger?

You've probably seen the Dole sticker on a banana.

Well, you will soon find the Dole stock ticker "DOLE" on the New York Stock Exchange.

But Dole stock, while an instantly recognizable fruit and veggie brand, might not be the buy it seems.

We want to help you make an informed decision before getting hyped on this IPO, so we're going to share a few points from the Dole IPO filing today.

The company filed with the U.S. Securities and Exchange Commission on July 2. Deutsche Bank AG (NYSE: DB) and Goldman Sachs Group Inc. (NYSE: GS) will lead a group of seven banks to underwrite the Dole IPO.

The Dole brand is timeless, but you should know that Dole Plc. is a relatively new company.

Dole Plc today is twice as large as Dole pre-2018. It expects to reach new markets over the next few years.

But selling produce can be a delicate balance.

Here's everything you should know about this company before buying Dole stock. This should give you some idea of whether Dole Plc. is a value buy or not...

What Is Dole Plc.?

Dole Food Co. has existed since the 1850s - you know, the produce company.

Dole Plc., as it is known today, only came around in 2018, when 45% of the company was bought by Total Produce.

Total Produce was another produce corporation founded around the same time as Dole. The companies have been working on a merger since 2018. And the Dole IPO marks a significant milestone in the process.

Together, they will form a massive fruit-and-vegetable conglomerate based in Dublin, Ireland.

Dole and Total Produce have jointly said the IPO will help "simplify the existing structure between the two companies."

In other words, by offering shares to the public, the two companies can cement their merger and serve public shareholders under the same banner.

Dole Plc. will continue the prior mission of both businesses - selling fruit primarily in North America and Europe.

Currently, Dole leads North America in banana sales, while it falls second in Europe. It comes second for pineapples in both places.

According to the IPO prospectus, Dole has been underrepresented in Europe for a while. The merger with Total Produce and its larger European presence will help spread the Dole name in countries like U.K., France, Spain, and Portugal.

Moving forward, it wants to grow its berries, avocados, and organic segments, spotting a growing health trend. The prospectus cites Nielsen data showing a growth in traffic to the produce sections of stores.

In total, it has over 300 products including ready-made salads and foods for plant-based diets.

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Is Dole Profitable?

Dole and Total Produce are both massive, long-standing companies with profitable histories. Dole predicts the combined company will be "twice as large as its nearest competitor in revenue," probably Chiquita or Del Monte.

It will also pay a regular dividend, "progressively increasing the dividend payout in line with the growth in earnings."

In 2020, Dole made more than $80 million in profit on $9 billion revenue.

Total Produce made over $52 million on $4.35 billion revenue.

The combined company's total assets consist of 109,000 acres of land, 16,800 refrigerated containers, six refrigerated ships, and 250 manufacturing and storage facilities.

One issue standing in Dole Plc.'s way is debt. It has $1 billion in long-term liabilities that exposes the company to some risk.

But that's not the only risk facing Dole.

On the other side of the balance sheet, Dole extends credit to key customers. As of Dec. 31, it's waited on customers to pay $741 million in pay for products delivered.

This can substantially affect the company's liquidity - it could even put the dividend in question if things go south.

Still, looking at the big picture, there's more to be concerned about with Dole. Here's what that is and how it should affect your decision.

Should You Buy Dole Stock?

Along with the debt question, Dole Plc. poses a few other fundamental concerns. These have to do with the nature of growing produce in general.

Large produce companies often face scrutiny over pesticides, bad crops, and immigrant labor.

The company doesn't specify, but it says a "significant number" of its 4,000 employees are immigrants. Ultimately, that makes Dole's productivity subject to the immigration laws of any country where it operates.

Without the immigrant workforce, Dole claims there's a "scarcity of available personnel" to harvest fruits and vegetables at sustainable prices.

Banana crops diseased with Tropical Race 4 (TR4) have also affected the company in Asia and Australia. Preventing the disease in other regions will cost the company over $5 million in 2022.

On the other side of the quality-control coin, Dole could expect lawsuits regarding its chemical pesticide use. There have been pending lawsuits since the chemical DBCP was linked to male sterility in 1979.

Of course, these issues are all business as usual for a produce company. And a company that has lasted this long, with such a recognizable brand, shows it can handle these matters efficiently.

In fact, its stated emphasis on organic foods could play a role in avoiding future legal trouble over pesticides and the like.

It's up to investors whether they want to expose themselves to those specific market risks.

Dole Plc. has not yet priced its IPO. When that happens, we will have a better idea of whether the company is overvalued or undervalued based on the number of shares and its revenue.

If the dangers of produce don't scare you away, stick with us for updates on the Dole IPO down the line.

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About the Author

Mike Stenger, Associate Editor for Money Morning at Money Map Press, graduated from the Perdue School of Business at Salisbury University. He has combined his degree in Economics with an interest in emerging technologies by finding where tech and finance overlap. Today, he studies the cybersecurity sector, AI, streaming, and the Cloud.

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