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I was looking through the list of top % gainers today and came across Smucker (SJM) which closed at $53.44, up $2.06 or 4.01% on the day. I do not own any shares nor do I have any options on this stock but I must confess to being a regular peanut butter and jelly consumer and Smucker is certainly one of my favorite brands!
Let's take a closer look at this stock and I will share with you why I believe it deserves a place on this blog!
SMUCKER (SJM) IS RATED A BUY
What exactly does this company do?
According to the Yahoo "Profile" on Smucker, the company
"...engages in the manufacture and marketing of branded food products worldwide. It provides peanut butter, shortening and oils, flour and baking ingredients, fruit spreads, baking mixes and ready-to-spread frostings, fruit and vegetable juices, beverages, dessert toppings, syrups, frozen sandwiches, pickles and condiments, and potato side dishes."
How did Smucker do in the latest quarter?
On February 16, 2007, Smucker (SJM) announced 3rd quarter 2007 results. Sales for the company declined in the quarter from $536.5 million in the quarter ended January 31, 2006, to $523.1 million in the same quarter ended January 31, 2007. O.K., I know I always pick stocks with revenue growing in the latest quarter! But I really like Smucker's jam and Jif peanut butter...and it has been a really lousy stock market and I need some comfort food like this to discuss :). But seriously, as the company points out, if it excludes discontinued Canadian businesses and U.S. industrial ingredient businesses, their sales actually increased 6%. Net income for the quarter did increase 29% to $40.4 million from $31.3 million, or a 31% increase on a per share basis from $.54/share in the third quarter of 2006 to $.71/share in the same quarter in the 2007 fiscal year.
This certainly was a mixed-news report, with the company missing revenue expectations of $534 million, but beating expectations for earnings of $.69/share. Apparently, Smucker was a beneficiary of the troubled Peter Pan peanut butter salmonella outbreak, as consumers turned to Jif for an alternative spread.
How about longer-term financial results?
Reviewing the Morningstar.com "5-Yr Restated" financials, we can see the large increase in revenue from $650 million in 2002 to $2.155 billion in 2006 and $2.156 billion in the trailing twelve months (TTM).
Earnings during this period have steadily increased from $1.31/share in 2002 to $2.45/share in 2006 and $2.63/share in the TTM.
The company has also been steadily increasing its dividend from $.68/share in 2002 to $1.08/share in 2006 and $1.11/share in the TTM. Since 2004, shares outstanding have increased from 50 million to 58 million in 2006 and 57 million in the TTM. Revenue and earnings have easily outpaced the growth in shares.
Free cash flow has been positive and growing with $39 million in 2004 increasing to $135 million in 2006 and $222 million in the trailing twelve months (TTM).
The balance sheet is good with $152.2 million in cash and $429.8 million in other current assets. This total of $582 million in current assets, when compared to the $247.5 million in current liabilities yields a current ratio of 2.35. The company does have a significant $653 million in long-term liabilities, but with the growing free cash flow, this doesn't appear to be a significant problem.
What about some valuation numbers?
Reviewing the Yahoo "Key Statistics" on Smucker, we can see that this company is a mid cap stock with a market cap of $3.03 billion. The trailing p/e is a reasonable 20.32, with a forward p/e (fye 30-Apr-08) estimated at 18.18. The PEG (5 yr expected) is a bit rich at 2.21.
Checking the Fidelity.com eresearch website, we can see that the valuation isn't too rich with a Price/Sales (TTM) of 1.36 with an industry average of 1.47. However, profitability, as measured by return on equity (TTM) comes in at 8.62%, less than the industry average of 20.69%.
Returning to Yahoo, we find that there are 56.62 million shares outstanding with 53.27 million that float. As of 2/12/07, there were 1.53 million shares out short representing 2.9% of the float of 7.9 trading days of volume (the short ratio). Using my '3 day rule', this short interest may well be significant with the stock moving higher today on an upgrade even while the rest of the market moved lower.
As noted above, the company pays a forward dividend of $1.12 yielding 2.20%. No stock splits are reported on Yahoo.
What does the chart look like?
If we examine the "Point & Figure" chart on Smucker from StockCharts.com, we can see a fairly steady progression from the $29 range in February, 2002 to the current $53.44 level. The company showed weakness early in 2006, but then recovered only to appreciate sharply throughout 2006 and into 2007. The chart looks strong to me.
Summary: What do I think about this stock?
I like Smucker (SJM) a lot. The latest quarterly report was imperfect, with revenue needing to be adjusted for discontinued business segments. However, the company has a nice Morningstar report, valuation is acceptable, the balance sheet is strong, the chart is solid, and the company makes a product that is high quality and easily understood. And I like Peanut Butter and Jelly.
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