Calavo Reports Strong FY2025 Growth Amid Persistent Turnaround Caution

What happened

Calavo Growers announced robust fiscal year 2025 results, with net income from continuing operations surging 191%, adjusted net income up 42%, and adjusted EBITDA growing 12%. This performance aligns with early turnaround signs noted in the DeepValue report, such as sequential EPS and free cash flow improvements following the RFG division sale. However, the company's history of negative net income from 2020 to 2024 and heavy exposure to volatile avocado prices casts doubt on the sustainability of this growth. The stock remains priced approximately 30% above a conservative DCF estimate, indicating limited valuation cushion despite recent improvements. Moreover, the ongoing strategic alternatives review adds uncertainty, as outcomes like a sale or capital returns could sway investor sentiment but are not yet resolved.

Implication

The strong FY2025 results reinforce Calavo's emerging profitability, potentially supporting a stock re-rating if sustained through future quarters. However, the stock's premium over DCF and historical earnings volatility mean investors should demand more evidence of durable cash flow before committing capital. The strategic review offers upside optionality from a sale or capital returns, but a lack of transaction or poor execution could pressure shares. Continued exposure to avocado commodity cycles and crop risks necessitates close monitoring of market conditions and operational margins. Overall, while the news is encouraging, it doesn't yet justify shifting from a 'WAIT' stance without further proof of turnaround resilience.

Thesis delta

The new financial results provide concrete evidence of the operational turnaround highlighted in the master report, potentially boosting short-term confidence in profitability improvements. However, they do not address core concerns about the stock's valuation premium or the durability of earnings through commodity downturns. Thus, the thesis remains cautiously optimistic but unchanged, emphasizing the need for sustained performance and clarity from the strategic review to validate a more constructive view.