JM Smucker Co Valuation – March 2019 #SJM

Company Profile (excerpt from Reuters): The J. M. Smucker Company, incorporated on October 26, 1921, is a manufacturer and marketer of branded food and beverage products and pet food and pet snacks in North America. The Company’s segments include U.S. Retail Coffee, U.S. Retail Consumer Foods, U.S. Retail Pet Foods, and International and Foodservice. The Company’s U.S. retail market segments consist of the sale of branded food products to consumers through retail outlets in North America. In the U.S. retail market segments, the Company’s products are sold to food retailers, food wholesalers, drug stores, club stores, mass merchandisers, discount and dollar stores, military commissaries, natural foods stores and distributors, and pet specialty stores. In International and Foodservice, the Company’s products are distributed domestically and in foreign countries through retail channels and foodservice distributors and operators, such as restaurants, lodging, schools and universities, healthcare operators.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of SJM – March 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $11,657,929,787 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.95 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 84.50% Pass
6. Moderate PEmg Ratio PEmg < 20 14.51 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.45 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.95 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -58.60 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $7.06
MG Growth Estimate 9.27%
MG Value $191.00
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $102.44
MG Value based on 0% Growth $60.05
Market Implied Growth Rate 3.00%
Current Price $102.49
% of Intrinsic Value 53.66%

J M Smucker Co qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $4.37 in 2015 to an estimated $7.06 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into J M Smucker Co revealed the company was trading above its Graham Number of $94.73. The company pays a dividend of $3.09 per share, for a yield of 3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 14.51, which was below the industry average of 26.89, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-63.43.

J M Smucker Co performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$63.43
Graham Number $94.73
PEmg 14.51
Current Ratio 0.95
PB Ratio 1.45
Current Dividend $3.09
Dividend Yield 3.01%
Number of Consecutive Years of Dividend Growth 17

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 1/1/2019
Total Current Assets $1,726,200,000
Total Current Liabilities $1,816,400,000
Long-Term Debt $5,285,800,000
Total Assets $16,927,600,000
Intangible Assets $13,197,900,000
Total Liabilities $8,906,000,000
Shares Outstanding (Diluted Average) 113,200,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.74
Apr2018 $11.78
Apr2017 $5.10
Apr2016 $5.76
Apr2015 $3.33
Apr2014 $5.42
Apr2013 $5.00
Apr2012 $4.06
Apr2011 $4.05
Apr2010 $4.15
Apr2009 $3.11
Apr2008 $3.00
Apr2007 $2.76
Apr2006 $2.45
Apr2005 $2.24
Apr2004 $2.24
Apr2003 $2.02
Apr2002 $1.31
Apr2001 $1.12
Apr2000 $0.97
Apr1999 $1.31

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $7.06
Apr2018 $7.24
Apr2017 $4.96
Apr2016 $4.83
Apr2015 $4.37
Apr2014 $4.77
Apr2013 $4.32
Apr2012 $3.88
Apr2011 $3.66
Apr2010 $3.34
Apr2009 $2.86
Apr2008 $2.67
Apr2007 $2.45
Apr2006 $2.22
Apr2005 $2.00
Apr2004 $1.76
Apr2003 $1.46

Recommended Reading:

Other ModernGraham posts about the company

5 Undervalued Companies for Value Investors with a Low Beta – May 2018
J M Smucker Co Valuation – May 2018 $SJM
J M Smucker Co Valuation – February 2017 $SJM
J.M. Smucker Co Valuation – August 2016 $SJM
J.M. Smucker Co Valuation – February 2016 $SJM

Other ModernGraham posts about related companies

Lamb Weston Holdings Inc Valuation – March 2019 #LW
Kraft Heinz Co Valuation – March 2019 #KHC
Sysco Corp Valuation – March 2019 $SYY
General Mills Inc Valuation – February 2019 $GIS
McCormick & Co Valuation – February 2019 $MKC
Archer-Daniels Midland Co Valuation – February 2019 $ADM
Conagra Brands Inc Valuation – February 2019 $CAG
Monster Beverage Corp Valuation – February 2019 $MNST
Campbell Soup Co Valuation – January 2019 $CPB
Kellogg Co Valuation – January 2019 $K

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

J M Smucker Co Valuation – May 2018 $SJM

Company Profile (excerpt from Reuters): The J. M. Smucker Company, incorporated on October 26, 1921, is a manufacturer and marketer of branded food and beverage products and pet food and pet snacks in North America. The Company’s segments include U.S. Retail Coffee, U.S. Retail Consumer Foods, U.S. Retail Pet Foods, and International and Foodservice. The Company’s U.S. retail market segments consist of the sale of branded food products to consumers through retail outlets in North America. In the U.S. retail market segments, the Company’s products are sold to food retailers, food wholesalers, drug stores, club stores, mass merchandisers, discount and dollar stores, military commissaries, natural foods stores and distributors, and pet specialty stores. In International and Foodservice, the Company’s products are distributed domestically and in foreign countries through retail channels and foodservice distributors and operators, such as restaurants, lodging, schools and universities, healthcare operators.

SJM Chart

SJM data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of SJM – May 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $12,645,860,267 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.48 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 104.16% Pass
6. Moderate PEmg Ratio PEmg < 20 14.60 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.56 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.48 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 9.02 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $7.39
MG Growth Estimate 8.26%
MG Value $184.97
Opinion Undervalued
MG Grade A
MG Value based on 3% Growth $107.21
MG Value based on 0% Growth $62.85
Market Implied Growth Rate 3.05%
Current Price $107.94
% of Intrinsic Value 58.36%

J M Smucker Co qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $4.77 in 2014 to an estimated $7.39 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.05% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into J M Smucker Co revealed the company was trading below its Graham Number of $128.91. The company pays a dividend of $2.92 per share, for a yield of 2.7%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 14.6, which was below the industry average of 31.56, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-52.35.

J M Smucker Co fares extremely well in the ModernGraham grading system, scoring an A.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$52.35
Graham Number $128.91
PEmg 14.60
Current Ratio 1.48
PB Ratio 1.56
Current Dividend $2.92
Dividend Yield 2.71%
Number of Consecutive Years of Dividend Growth 15

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 1/1/2018
Total Current Assets $1,609,900,000
Total Current Liabilities $1,089,900,000
Long-Term Debt $4,688,500,000
Total Assets $15,329,200,000
Intangible Assets $11,920,200,000
Total Liabilities $7,525,000,000
Shares Outstanding (Diluted Average) 113,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $12.23
Apr2017 $5.10
Apr2016 $5.76
Apr2015 $3.33
Apr2014 $5.42
Apr2013 $5.00
Apr2012 $4.06
Apr2011 $4.05
Apr2010 $4.15
Apr2009 $3.11
Apr2008 $3.00
Apr2007 $2.76
Apr2006 $2.45
Apr2005 $2.24
Apr2004 $2.24
Apr2003 $2.02
Apr2002 $1.31
Apr2001 $1.12
Apr2000 $0.97
Apr1999 $1.31
Apr1998 $1.08

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $7.39
Apr2017 $4.96
Apr2016 $4.83
Apr2015 $4.37
Apr2014 $4.77
Apr2013 $4.32
Apr2012 $3.88
Apr2011 $3.66
Apr2010 $3.34
Apr2009 $2.86
Apr2008 $2.67
Apr2007 $2.45
Apr2006 $2.22
Apr2005 $2.00
Apr2004 $1.76
Apr2003 $1.46
Apr2002 $1.18

Recommended Reading:

Other ModernGraham posts about the company

J M Smucker Co Valuation – February 2017 $SJM
J.M. Smucker Co Valuation – August 2016 $SJM
J.M. Smucker Co Valuation – February 2016 $SJM
J.M. Smucker Company Valuation – October 2015 Update $SJM
J.M. Smucker Company Analysis – July 2015 Update $SJM

Other ModernGraham posts about related companies

Dr Pepper Snapple Group Inc Valuation – May 2018 $DPS
Sysco Corp Valuation – May 2018 $SYY
General Mills Inc Valuation – May 2018 $GIS
Archer-Daniels Midland Co Valuation – May 2018 $ADM
Conagra Brands Inc Valuation – May 2018 $CAG
McCormick & Co Inc Valuation – May 2018 $MKC
Monster Beverage Corp Valuation – April 2018 $MNST
Campbell Soup Co Valuation – March 2018 $CPB
Kellogg Company Valuation – March 2018 $K
Hershey Co Valuation – March 2018 $HSY

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

J M Smucker Co Valuation – February 2017 $SJM

Benjamin 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 10 Stocks for Using A Benjamin Graham Value Investing Strategy – February 2017.  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 stock analysis showing a specific look at how J M Smucker Co (SJM) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): The J. M. Smucker Company is a manufacturer and marketer of branded food and beverage products and pet food and pet snacks in North America. The Company’s segments include U.S. Retail Coffee, U.S. Retail Consumer Foods, U.S. Retail Pet Foods, and International and Foodservice. The Company’s U.S. retail market segments consist of the sale of branded food products to consumers through retail outlets in North America. In the U.S. retail market segments, the Company’s products are sold to food retailers, food wholesalers, drug stores, club stores, mass merchandisers, discount and dollar stores, military commissaries, natural foods stores and distributors, and pet specialty stores. In International and Foodservice, the Company’s products are distributed domestically and in foreign countries through retail channels and foodservice distributors and operators, such as restaurants, lodging, schools and universities, healthcare operators.

SJM Chart

SJM data by YCharts

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Downloadable PDF version of this valuation:

ModernGraham Valuation of SJM – February 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $16,107,616,041 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.38 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 52.34% Pass
6. Moderate PEmg Ratio PEmg < 20 25.38 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.23 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.38 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 9.91 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $5.44
MG Growth Estimate 3.88%
MG Value $88.44
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $78.85
MG Value based on 0% Growth $46.22
Market Implied Growth Rate 8.44%
Current Price $138.02
% of Intrinsic Value 156.06%

J M Smucker Co does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $4.32 in 2013 to an estimated $5.44 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 8.44% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into J M Smucker Co revealed the company was trading above its Graham Number of $95.26. The company pays a dividend of $2.76 per share, for a yield of 2% Its PEmg (price over earnings per share – ModernGraham) was 25.38, which was above the industry average of 24.74. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-60.97.

J M Smucker Co scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$60.97
Graham Number $95.26
PEmg 25.38
Current Ratio 1.38
PB Ratio 2.23
Current Dividend $2.76
Dividend Yield 2.00%
Number of Consecutive Years of Dividend Growth 15

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Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 10/1/2016
Total Current Assets $1,805,200,000
Total Current Liabilities $1,306,300,000
Long-Term Debt $4,945,400,000
Total Assets $16,058,200,000
Intangible Assets $12,467,300,000
Total Liabilities $8,878,100,000
Shares Outstanding (Diluted Average) 116,009,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $6.54
Apr2016 $5.76
Apr2015 $3.33
Apr2014 $5.42
Apr2013 $5.00
Apr2012 $4.06
Apr2011 $4.05
Apr2010 $4.15
Apr2009 $3.11
Apr2008 $3.00
Apr2007 $2.76
Apr2006 $2.45
Apr2005 $2.24
Apr2004 $2.24
Apr2003 $2.02
Apr2002 $1.31
Apr2001 $1.12
Apr2000 $0.97
Apr1999 $1.31
Apr1998 $1.08
Apr1997 $2.28

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.44
Apr2016 $4.83
Apr2015 $4.37
Apr2014 $4.77
Apr2013 $4.32
Apr2012 $3.88
Apr2011 $3.66
Apr2010 $3.34
Apr2009 $2.86
Apr2008 $2.67
Apr2007 $2.45
Apr2006 $2.22
Apr2005 $2.00
Apr2004 $1.76
Apr2003 $1.46
Apr2002 $1.18
Apr2001 $1.19

Recommended Reading:

Other ModernGraham posts about the company

J.M. Smucker Co Valuation – February 2016 $SJM
J.M. Smucker Company Valuation – October 2015 Update $SJM
J.M. Smucker Company Analysis – July 2015 Update $SJM
J.M. Smucker Company Quarterly Valuation – April 2015 $SJM
58 Companies in the Spotlight This Week – 1/31/15

Other ModernGraham posts about related companies

Dr Pepper Snapple Group Inc Valuation – January 2017 $DPS
J&J Snack Foods Corp Valuation – Initial Coverage $JJSF
Sysco Corporation Valuation – January 2017 $SYY
General Mills Inc Valuation – January 2017 $GIS
Coca-Cola European Partners PLC Valuation – January 2017 $CCE
Archer Daniels Midland Company Valuation – January 2017 $ADM
McCormick & Company Valuation – January 2017 $MKC
Conagra Brands Inc Valuation – December 2016 $CAG
Seneca Foods Corp Valuation – Initial Coverage $SENEA
Ingredion Inc Valuation – Initial Coverage $INGR

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

J.M. Smucker Co Valuation – August 2016 $SJM

Benjamin 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 10 Companies Benjamin Graham Would Invest In Today – July 2016.  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 stock analysis showing a specific look at how J.M. Smucker Co (SJM) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): The J. M. Smucker Company is a manufacturer and marketer of branded food and beverage products and pet food and pet snacks in North America. The Company’s segments include U.S. Retail Coffee, U.S. Retail Consumer Foods, U.S. Retail Pet Foods, and International and Foodservice. The Company’s U.S. retail market segments consist of the sale of branded food products to consumers through retail outlets in North America. In the U.S. retail market segments, the Company’s products are sold to food retailers, food wholesalers, drug stores, club stores, mass merchandisers, discount and dollar stores, military commissaries, natural foods stores and distributors, and pet specialty stores. In International and Foodservice, the Company’s products are distributed domestically and in foreign countries through retail channels and foodservice distributors and operators, such as restaurants, lodging, schools and universities, healthcare operators.

SJM Chart

SJM data by YCharts

[level-free]
To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
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Downloadable PDF version of this valuation:

ModernGraham Valuation of SJM – August 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $18,128,678,273 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.30 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 61.89% Pass
6. Moderate PEmg Ratio PEmg < 20 26.82 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.62 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.30 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 14.28 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

SJM value chart August 2016

EPSmg $5.76
MG Growth Estimate 5.02%
MG Value $106.83
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $83.59
MG Value based on 0% Growth $49.00
Market Implied Growth Rate 9.16%
Current Price $154.61
% of Intrinsic Value 144.72%

J M Smucker Co does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $4.32 in 2013 to an estimated $5.76 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 9.16% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into J M Smucker Co revealed the company was trading above its Graham Number of $100.97. The company pays a dividend of $2.65 per share, for a yield of 1.7% Its PEmg (price over earnings per share – ModernGraham) was 26.82, which was below the industry average of 30.19, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-62.22.

J M Smucker Co scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

SJM charts August 2016

Net Current Asset Value (NCAV) -$62.22
Graham Number $100.97
PEmg 26.82
Current Ratio 1.30
PB Ratio 2.62
Current Dividend $2.65
Dividend Yield 1.71%
Number of Consecutive Years of Dividend Growth 15

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 4/1/2016
Total Current Assets $1,573,400,000
Total Current Liabilities $1,213,000,000
Long-Term Debt $5,146,000,000
Total Assets $15,984,100,000
Intangible Assets $12,585,500,000
Total Liabilities $8,975,600,000
Shares Outstanding (Diluted Average) 118,960,000

Earnings Per Share History

Next Fiscal Year Estimate $7.52
Apr2016 $5.76
Apr2015 $3.33
Apr2014 $5.42
Apr2013 $5.00
Apr2012 $4.06
Apr2011 $4.05
Apr2010 $4.15
Apr2009 $3.11
Apr2008 $3.00
Apr2007 $2.76
Apr2006 $2.45
Apr2005 $2.24
Apr2004 $2.24
Apr2003 $2.02
Apr2002 $1.31
Apr2001 $1.12
Apr2000 $0.97
Apr1999 $1.31
Apr1998 $1.08
Apr1997 $2.28

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $5.76
Apr2016 $4.83
Apr2015 $4.37
Apr2014 $4.77
Apr2013 $4.32
Apr2012 $3.88
Apr2011 $3.66
Apr2010 $3.34
Apr2009 $2.86
Apr2008 $2.67
Apr2007 $2.45
Apr2006 $2.22
Apr2005 $2.00
Apr2004 $1.76
Apr2003 $1.46
Apr2002 $1.18
Apr2001 $1.19

Recommended Reading:

Other ModernGraham posts about the company

J.M. Smucker Co Valuation – February 2016 $SJM
J.M. Smucker Company Valuation – October 2015 Update $SJM
J.M. Smucker Company Valuation – October 2015 Update $SJM
J.M. Smucker Company Analysis – July 2015 Update $SJM
J.M. Smucker Company Quarterly Valuation – April 2015 $SJM

Other ModernGraham posts about related companies

General Mills Inc Valuation – August 2016 $GIS
Archer Daniels Midland Co – August 2016 $ADM
Coca-Cola Co Valuation – July 2016 $KO
Monster Beverage Corp Valuation – July 2016 $MNST
Campbell Soup Company Valuation – July 2016 $CPB
Kellogg Company Valuation – July 2016 $K
Hershey Co Valuation – July 2016 $HSY
PepsiCo Inc Valuation – July 2016 $PEP
Mead Johnson Nutrition Valuation – June 2016 $MJN
B&G Foods Inc Valuation – March 2016 $BGS

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

J.M. Smucker Co Valuation – February 2016 $SJM

Benjamin 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 10 Companies Benjamin Graham Would Invest In Today – February 2016.  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 stock analysis showing a specific look at how J.M. Smucker Co (SJM) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): The J. M. Smucker Company is a manufacturer and marketer of consumer food and beverage products and pet food and pet snacks in North America. The Company has four segments: U.S. Retail Coffee, U.S. Retail Consumer Foods, U.S. Retail Pet Foods, and International, Foodservice and Natural Foods. The Company’s U.S. retail market segments consist of the sale of branded food products to consumers through retail outlets in North America. The Company’s International, Foodservice and Natural Foods segment represents sales outside of the U.S. retail market segments. The Company’s principal consumer food and beverage products are coffee, peanut butter, fruit spreads, shortening and oils, baking mixes and ready-to-spread frostings, canned milk, flour and baking ingredients, juices and beverages, frozen sandwiches, toppings, syrups, pickles, condiments, grain products and nut mix products. The Company’s pet products consist of dry and wet dog food, dry and wet cat food, dog snacks and cat snacks.

[level-free]

To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
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Downloadable PDF version of this valuation:

ModernGraham Valuation of SJM

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $15,267,323,112 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.77 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 57.84% Pass
6. Moderate PEmg Ratio PEmg < 20 27.33 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.10 Pass
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.77 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 6.29 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

SJM value chart February 2016

EPSmg $4.66
MG Growth Estimate 3.02%
MG Value $67.77
Opinion Overvalued
MG Value based on 3% Growth $67.56
MG Value based on 0% Growth $39.60
Market Implied Growth Rate 9.42%
Current Price $127.35
% of Intrinsic Value 187.92%

J.M. Smucker Co qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio as well as the high PEmg ratio.  The Enterprising Investor is only initially concerned by the level of debt relative to the net current assets.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further evaluation of the company.

As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $3.88 in 2012 to an estimated $4.66 for 2016.  This level of earnings growth does not support the market’s implied estimate of 9.42% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

Stage 3: Information for Further Research

SJM charts February 2016

Net Current Asset Value (NCAV) -$62.58
Graham Number $84.50
PEmg 27.33
Current Ratio 1.77
PB Ratio 2.10
Dividend Yield 2.03%
Number of Consecutive Years of Dividend Growth 14

 

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information Oct2015
Total Current Assets $2,006,000,000
Total Current Liabilities $1,132,700,000
Long-Term Debt $5,494,500,000
Total Assets $16,694,800,000
Intangible Assets $12,840,900,000
Total Liabilities $9,461,600,000
Shares Outstanding (Diluted Average) 119,136,000

Earnings Per Share History

Next Fiscal Year Estimate $5.25
Apr2015 $3.33
Apr2014 $5.42
Apr2013 $5.00
Apr2012 $4.06
Apr2011 $4.05
Apr2010 $4.15
Apr2009 $3.11
Apr2008 $3.00
Apr2007 $2.76
Apr2006 $2.45
Apr2005 $2.24
Apr2004 $2.24
Apr2003 $2.02
Apr2002 $1.31
Apr2001 $1.12
Apr2000 $0.97
Apr1999 $1.31
Apr1998 $1.08
Apr1997 $2.28
Apr1996 $2.16

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $4.66
Apr2015 $4.37
Apr2014 $4.77
Apr2013 $4.32
Apr2012 $3.88
Apr2011 $3.66
Apr2010 $3.34
Apr2009 $2.86
Apr2008 $2.67
Apr2007 $2.45
Apr2006 $2.22
Apr2005 $2.00
Apr2004 $1.76
Apr2003 $1.46
Apr2002 $1.18
Apr2001 $1.19
Apr2000 $1.34

Recommended Reading:

Other ModernGraham posts about the company

J.M. Smucker Company Valuation – October 2015 Update $SJM
J.M. Smucker Company Analysis – July 2015 Update $SJM
J.M. Smucker Company Quarterly Valuation – April 2015 $SJM
58 Companies in the Spotlight This Week – 1/31/15
J.M. Smucker Company Quarterly Valuation – January 2015 $SJM

Other ModernGraham posts about related companies

Archer-Daniels Midland Co Valuation – February 2016 $ADM
Keurig Green Mountain Inc Valuation – January 2016 Update $GMCR
Monster Beverage Corp Valuation – January 2016 Update $MNST
Monster Beverage Corp Valuation – January 2016 Update $MNST
Mead Johnson Nutrition Co Valuation – November 2015 Update $MJN
Archer Daniels Midland Valuation – November 2015 Update $ADM
The Best Companies of the Food Processing Industry – October 2015
J.M. Smucker Company Valuation – October 2015 Update $SJM
Keurig Green Mountain Inc. Valuation – October 2015 Update $GMCR
Monster Beverage Corporation Analysis – October 2015 Update $MNST

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

J.M. Smucker Company Valuation – October 2015 Update $SJM

Benjamin 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 10 Most Undervalued Companies for the Defensive Investor – October 2015.  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 stock analysis showing 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 is a manufacturer and marketer of consumer food and beverage products and pet food and pet snacks in North America. The Company has four segments: U.S. Retail Coffee, U.S. Retail Consumer Foods, U.S. Retail Pet Foods, and International, Foodservice and Natural Foods. The Company’s U.S. retail market segments consist of the sale of branded food products to consumers through retail outlets in North America. The Company’s International, Foodservice and Natural Foods segment represents sales outside of the U.S. retail market segments. The Company’s principal consumer food and beverage products are coffee, peanut butter, fruit spreads, shortening and oils, baking mixes and ready-to-spread frostings, canned milk, flour and baking ingredients, juices and beverages, frozen sandwiches, toppings, syrups, pickles, condiments, grain products and nut mix products. The Company’s pet products consist of dry and wet dog food, dry and wet cat food, dog snacks and cat snacks.

[level-free]

To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[level-mg-stocks-screens-subscriber]

Downloadable PDF version of this valuation:

ModernGraham Valuation of SJM – October 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $13,834,478,816 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.91 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 63.02% Pass
6. Moderate PEmg Ratio PEmg < 20 24.02 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.93 Pass
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.91 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 5.89 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

SJM value Chart October 2015

EPSmg $4.81
MG Growth Estimate 3.62%
MG Value $75.71
Opinion Overvalued
MG Value based on 3% Growth $69.78
MG Value based on 0% Growth $40.91
Market Implied Growth Rate 7.76%
Current Price $115.61
% of Intrinsic Value 152.71%

J.M. Smucker Company qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned by the low current ratio and the high PEmg ratio, while the Enterprising Investor is only concerned by the level of debt relative to the net current assets.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $3.88 in 2012 to an estimated $4.81 for 2016.  This level of demonstrated earnings growth does not support the market’s implied estimate of 7.76% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

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.

Stage 3: Information for Further Research

SJM Charts October 2015

Net Current Asset Value (NCAV) -$63.83
Graham Number $87.49
PEmg 24.02
Current Ratio 1.91
PB Ratio 1.93
Dividend Yield 2.21%
Number of Consecutive Years of Dividend Growth 14

 

[/level-mg-stocks-screens-subscriber]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Total Current Assets $2,025,500,000
Total Current Liabilities $1,059,100,000
Long-Term Debt $5,694,700,000
Total Assets $16,758,400,000
Intangible Assets $12,893,100,000
Total Liabilities $9,628,400,000
Shares Outstanding (Diluted Average) 119,103,000

Earnings Per Share History

Next Fiscal Year Estimate $5.71
Apr15 $3.33
Apr14 $5.42
Apr13 $5.00
Apr12 $4.06
Apr11 $4.05
Apr10 $4.15
Apr09 $3.11
Apr08 $3.00
Apr07 $2.76
Apr06 $2.45
Apr05 $2.24
Apr04 $2.24
Apr03 $2.02
Apr02 $1.31
Apr01 $1.12
Apr00 $0.97
Apr99 $1.31
Apr98 $1.08
Apr97 $2.28
Apr96 $2.16

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $4.81
Apr15 $4.37
Apr14 $4.77
Apr13 $4.32
Apr12 $3.88
Apr11 $3.66
Apr10 $3.34
Apr09 $2.86
Apr08 $2.67
Apr07 $2.45
Apr06 $2.22
Apr05 $2.00
Apr04 $1.76
Apr03 $1.46
Apr02 $1.18
Apr01 $1.19
Apr00 $1.34

Recommended Reading:

Other ModernGraham posts about the company

J.M. Smucker Company Analysis – July 2015 Update $SJM
J.M. Smucker Company Quarterly Valuation – April 2015 $SJM
58 Companies in the Spotlight This Week – 1/31/15
J.M. Smucker Company Quarterly Valuation – January 2015 $SJM
13 Companies in the Spotlight This Week – 10/4/14

Other ModernGraham posts about related companies

Keurig Green Mountain Inc. Valuation – October 2015 Update $GMCR
Monster Beverage Corporation Analysis – October 2015 Update $MNST
B&G Foods Inc. Analysis – September 2015 Update $BGS
Hormel Foods Corporation Analysis – September 2015 Update $HRL
Dr Pepper Snapple Group Inc Analysis – September 2015 Update $DPS
Sysco Corporation Analysis – September 2015 Update $SYY
Coca-Cola Enterprises Inc. Analysis – September 2015 Update $CCE
Mead Johnson Nutrition Analysis – August 2015 Update $MJN
McCormick & Company Inc. Analysis – August 2015 Update $MKC
ConAgra Foods Inc. Analysis – August 2015 Update $CAG

Disclaimer:

The author held a long position in Coach Inc. (COH) but did not hold a position 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.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

J.M. Smucker Company Analysis – July 2015 Update $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 Most Undervalued Companies for the Defensive Investor – July 2015.  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 stock analysis showing 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 is a manufacturer and marketer of consumer food and beverage products and pet food and pet snacks in North America. The Company has four segments: U.S. Retail Coffee, U.S. Retail Consumer Foods, U.S. Retail Pet Foods, and International, Foodservice and Natural Foods. The Company’s U.S. retail market segments consist of the sale of branded food products to consumers through retail outlets in North America. The Company’s International, Foodservice and Natural Foods segment represents sales outside of the U.S. retail market segments. The Company’s principal consumer food and beverage products are coffee, peanut butter, fruit spreads, shortening and oils, baking mixes and ready-to-spread frostings, canned milk, flour and baking ingredients, juices and beverages, frozen sandwiches, toppings, syrups, pickles, condiments, grain products and nut mix products. The Company’s pet products consist of dry and wet dog food, dry and wet cat food, dog snacks and cat snacks.

[level-free]
To read the rest of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.
[/level-free]
[level-mg-stocks-screens-subscriber]

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 – PASS
  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 – FAIL
  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 $107.12
MG Value $62.30
MG Opinion Overvalued
Value Based on 3% Growth $63.32
Value Based on 0% Growth $37.12
Market Implied Growth Rate 8.02%
Net Current Asset Value (NCAV) -$71.18
PEmg 24.53
Current Ratio 2.01
PB Ratio 1.64

Balance Sheet – April 2015

Current Assets $2,052,000,000
Current Liabilities $1,023,000,000
Total Debt $5,945,000,000
Total Assets $16,883,000,000
Intangible Assets $12,960,000,000
Total Liabilities $9,796,000,000
Outstanding Shares 108,800,000

Earnings Per Share

2015 $3.33
2014 $5.42
2013 $5.00
2012 $4.06
2011 $4.05
2010 $4.15
2009 $3.11
2008 $3.00
2007 $2.76
2006 $2.45
2005 $2.24

Earnings Per Share – ModernGraham

2015 $4.37
2014 $4.77
2013 $4.32
2012 $3.88
2011 $3.66
2010 $3.34

Dividend History

Free Cash Flow

Conclusion:

J.M. Smucker Company qualifies for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor is only concerned with the high PEmg ratio.  The Enterprising Investor is only initially concerned by the level of debt relative to the net current assets.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the evaluation.  As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $3.66 in 2011 to $4.37 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 8.02% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

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 any 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.

[/level-mg-stocks-screens-subscriber]

J.M. Smucker Company Quarterly Valuation – April 2015 $SJM

logo-smuckersJ.M. Smucker Company (NYSE:SJM) may attract some investors due to the company’s history of dividend growth. Benjamin Graham, the father of value investing, taught that looking at the price cannot be the sole factor in investment decisions, as the most important aspect to consider is whether the company is trading at a discount relative to its intrinsic value. It is through a thorough fundamental analysis that the investor is able to make a determination about a potential investment’s merits. Here is a look at how SJM fares in the ModernGraham valuation model.

The model is inspired by the teachings of Benjamin Graham, and considers numerous metrics intended to help the investor reduce risk levels. The first part of the analysis is to determine whether the company is suitable for the very conservative Defensive Investor or the less conservative Enterprising Investor, who is willing to spend a greater amount of time conducting further research.

In addition, Graham strongly suggested that investors avoid speculation, in order to remove the subjective elements of emotion. This is best achieved by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another. By using theModernGraham method, one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.

SJM Chart

SJM data by YCharts

[level-free]
To read the rest of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.
[/level-free]
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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 – PASS
  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 1/3rd over the last 10 years, using 3-year averages at the beginning and end of the period – PASS
  6. Moderate PEmg (price over normalized earnings) Ratio – PEmg is less than 20 – FAIL
  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 $115.55
MG Value $97.27
MG Opinion Overvalued
Value Based on 3% Growth $72.50
Value Based on 0% Growth $42.50
Market Implied Growth Rate 7.31%
Net Current Asset Value (NCAV) -$23.27
PEmg 23.11
Current Ratio 2.14
PB Ratio 2.24

Balance Sheet – January 2015

Current Assets $1,516,000,000
Current Liabilities $710,000,000
Total Debt $1,892,000,000
Total Assets $9,096,000,000
Intangible Assets $6,109,000,000
Total Liabilities $3,871,000,000
Outstanding Shares 101,200,000

Earnings Per Share

2015 (estimate) $5.23
2014 $5.42
2013 $5.00
2012 $4.06
2011 $4.05
2010 $4.15
2009 $3.11
2008 $3.00
2007 $2.76
2006 $2.45
2005 $2.24

Earnings Per Share – ModernGraham

2015 (estimate) $5.00
2014 $4.77
2013 $4.32
2012 $3.88
2011 $3.66
2010 $3.34

Dividend History

SJM Dividend Chart

SJM Dividend data by YCharts

Conclusion

J.M. Smucker Company passes the initial requirements of both the Defensive Investor and the Enterprising Investor. The Defensive Investor’s only concern is the high PEmg ratio, while the Enterprising Investor is only concerned by the level of debt relative to the net current assets. As a result, all value investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to that valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $3.66 in 2011 to an estimated $5.00 for 2015. This is a strong level of demonstrated growth, but it does not support the market’s implied estimate for earnings growth of 7.31% annually over the next 7-10 years. The ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur, and returns an estimate of intrinsic value falling below the current price, indicating the company is overvalued at the present time.

[/level-mg-stocks-screens-subscriber]

J.M. Smucker Company Quarterly Valuation – January 2015 $SJM

logo-smuckers

J.M. Smucker should satisfy the Enterprising Investor, but not the Defensive Investor. The Defensive Investor is concerned with the low current ratio and the high PEmg ratio, while the Enterprising Investor’s only concern is the level of debt relative to the net current assets. Therefore, Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

From a valuation side of things, the company has grown its EPSmg (normalized earnings) from $3.66 in 2011 to an estimated $5.06 for 2015. This is a very strong and impressive level of demonstrated growth, which is in line with the market’s implied estimate for earnings growth of 6.04% over the next 7-10 years. The ModernGraham valuation model, therefore, returns an estimate of intrinsic value falling within a margin of safety relative to the current price, indicating the company is fairly valued at the present time.

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

Read the full valuation on Seeking Alpha!

SJM Chart

SJM data by YCharts

Disclaimer:  The author did not hold a position in J.M. Smucker Company (SJM) 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.

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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