Food Processing Stocks

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

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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

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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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