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Undervalued JM Smucker Company Has Several In-Game Expansions
JM Smucker Company (NYSE: SJM) The second quarter results are not without problems, but these can be overlooked in favor of pricing power. While inflation concerns reduce the bottom line, the reduction has been less severe than expected and the company expects higher net prices across a wide range of categories to offset the impact. In our opinion, JM Smucker was one of the most attractive consumer staples companies prior to the report due to its value and performance. Now he’s more attractive than ever.
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JM Smucker shatters consensus
JM Smucker had a good quarter despite the growing threat of rising commodity, freight, manufacturing and packaging prices. The company reported revenue of $ 2.05 billion, up 1.0% from a year ago and beat the consensus by 490 basis points. This also includes the impact of divestitures. Including the sale of Crisco and Natural Balance, sales from continuing operations were up 8.0%. On a sector basis, a decrease of -1.0% in Pets and a decrease of -8.0% in Consumer Foods were more than offset by an 8% increase in Coffee and a 4% increase in International / Food Away.
Going down the ratio, the company saw a sharp drop in margin, but less than expected and offset by strong revenues. Gross profit fell 13% on higher costs, but left GAAP and adjusted earnings above consensus. GAAP EPS of $ 1.90 beat by a nickel while adjusted $ 2.43 beat by $ 0.38. On the growth front, GAAAP earnings are down -6.0% from last year while Adjusted EPS is up 2%.
Looking ahead, the company expects prices to increase which, along with demand, will help drive growth above previous expectations. The company raised its revenue forecast to be flat or slightly above previous declining figures with EPS of between $ 8.35 and $ 8.75. This compares to the previous forecast of $ 8.25 to $ 8.65 and the Marketbeat.com consensus of $ 8.41.
Analysts push JM Smucker higher
Analysts only rate JM Smucker Co. at Hold, but we believe that will change soon. There were at least 5 sellers with comments after the Q2 release and everything was bullish. While no analysts upped their rating, they all upped their price targets in response to market action. Marketbeat.com’s consensus price target is near $ 134 and assumes the stock is correctly priced at current levels. The high price target of $ 146, however, assumes more than a 10% hike is available and that’s not counting the dividend. The dividend is worth around 3% at current prices and the stock is still cheap compared to its peers. The most valuable consumer staples trade closer to 25 times to 30 times their profits, compared to just 19 times for JM Smucker Co.
The technical outlook: JM Smucker Co. is founded
The stock price action of The JM Smucker Co. slumped at the end of the summer due to the inflationary outlook, but is now melting higher. With the company’s adoption of price increases and the successful fight against inflation, it looks like the price action will continue to rise. There is some resistance at the $ 134 level, but we believe it will be overcome soon. Otherwise, the price action may close the gap formed after the earnings release before it goes up.
JM Smucker is part of the Entrepreneur Index, which tracks some of the largest publicly traded companies founded and run by entrepreneurs.