Food Processing Stocks

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

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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

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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
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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.

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