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Saturday, November 25, 2017

J.M. Smucker Company Quarterly Stock Valuation – September 2014 $SJM


logo-smuckersBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Highest Dividend Yields Among Undervalued Companies for the Defensive Investor – September 2014.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how J.M. Smucker Company (SJM) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): The J. M. Smucker Company operates principally in the manufacturing and marketing of branded food products. Majority of the Company’s sales are in the United States. The Company’s operations outside the United States are principally in Canada, although products are exported to other countries as well. The Company operates in three segments: U.S. Retail Coffee, U.S. Retail Consumer Foods, and International, Foodservice and Natural Foods. In August 2013, the Company completed an acquisition of Enray Inc. In September 2014, Palladium Equity Partners, LLC completed the sale of Sahale Snacks, Inc to the Company.
SJM Chart

SJM data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 6/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $98.53
MG Value $111.93
MG Opinion Fairly Valued
Value Based on 3% Growth $76.09
Value Based on 0% Growth $44.60
Market Implied Growth Rate 5.14%
Net Current Asset Value (NCAV) -$23.94
PEmg 18.78
Current Ratio 1.70
PB Ratio 1.97

Balance Sheet – 7/31/2014

Current Assets $1,728,200,000
Current Liabilities $1,019,300,000
Total Debt $1,881,100,000
Total Assets $9,250,200,000
Intangible Assets $6,098,300,000
Total Liabilities $4,165,800,000
Outstanding Shares 101,820,000

Earnings Per Share

2015 (estimate) $5.94
2014 $5.46
2013 $5.00
2012 $4.06
2011 $4.05
2010 $4.19
2009 $3.12
2008 $3.00
2007 $2.76
2006 $2.45
2005 $2.26

Earnings Per Share – ModernGraham

2015 (estimate) $5.25
2014 $4.78
2013 $4.33
2012 $3.89
2011 $3.68
2010 $3.36

Dividend History
SJM Dividend Chart

SJM Dividend data by YCharts

Conclusion:

J.M. Smucker Company qualifies for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor’s only initial concern is with the low current ratio while the Enterprising Investor’s only issue is the high level of debt relative to the net current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with research into the company and comparing it to other opportunities. From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $3.68 in 2011 to an estimated $5.25 for 2015.  This level of demonstrated growth supports the market’s implied estimate of 5.14% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the price.

Be sure to check out the previous ModernGraham valuations of J. M. Smucker Company (SJM) for more perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on J. M. Smucker Company (SJM)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in J. M. Smucker Company (SJM) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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