On Thursday, Argus maintained a Buy rating on J.M. Smucker Co. (NYSE: NYSE:SJM) but lowered the stock's price target to $135 from $150. The firm's decision reflects a positive outlook on the company's market share growth and ongoing strategic moves, despite adjusting the target price.
J.M. Smucker, known for its extensive range of food and beverage products, is experiencing an increase in market share driven by sustained high levels of at-home food and beverage consumption. The company is actively addressing inflation and supply-chain issues through strategic price increases and enhanced productivity measures.
In an effort to bolster profitability, J.M. Smucker is in the process of selling off its less rapidly growing pet food brands. These brands represent approximately 20% of the company's total sales but contribute only a modest mid-single-digit percentage to earnings. Furthermore, the company is expanding its presence in the convenience food sector following the acquisition of Hostess Brands (NASDAQ:TWNK).
From a financial perspective, shares of J.M. Smucker are trading at a multiple of 11 times the firm's fiscal year 2026 earnings per share (EPS) estimate. This valuation is notably lower than the industry peer average of 15 and is also beneath the midpoint of the historical average range of 8-28 over the past five years.
The revised price target of $135, now set at 13 times the fiscal year 2026 EPS estimate, reflects the firm's confidence in J.M. Smucker's growth potential and its initiatives to divest from less profitable segments. Additionally, the company has a longstanding reputation for increasing its dividend, which currently boasts a yield of around 3.7%.
In other recent news, J.M. Smucker reported a mixed fourth-quarter financial outcome for fiscal year 2024. The company's revenue fell short of consensus estimates by 1.7% at $2,205.7 million, yet exceeded expectations in key financial metrics such as adjusted gross margin, EBIT, and EPS. Investment firm DA Davidson lowered its price target on J.M. Smucker shares to $126 from $132 due to the company's ambitious financial projections for fiscal years 2025 to 2026 in a competitive market. The firm maintained its Neutral rating on the stock.
Additionally, TD (TSX:TD) Cowen revised its price target for J.M. Smucker to $135, citing slowing retail trends and underperformance in its Coffee and Hostess segments, but sustained a Buy rating. In the company's full-year report, there was an 8% increase in net sales and an adjusted EPS of $9.94 for Fiscal 2024, largely due to the acquisition of Hostess Brands.
J.M. Smucker anticipates a net sales growth of 2% and an adjusted EPS of $10.00 for Fiscal 2025. Despite potential challenges posed by higher commodity costs and expenses for a new Uncrustables facility, the company maintains a positive outlook, planning to prioritize debt reduction while expecting adjusted EPS growth in Fiscal 2026.
InvestingPro Insights
As J.M. Smucker Co. (NYSE: SJM) navigates the challenges of inflation and supply-chain issues, Argus maintains a positive stance on the company's strategic initiatives and market share growth. Complementing this perspective, InvestingPro data highlights a P/E ratio of 15.49, which is competitive within the industry, and an adjusted P/E ratio for the last twelve months as of Q4 2024 at 13.47, suggesting a potentially undervalued stock relative to its earnings. Additionally, the company's revenue for the same period stands at $8.178 billion, with a gross profit margin of 38.13%, indicating strong profitability.
Key InvestingPro Tips provide further insight: J.M. Smucker has been proactive in shareholder value creation through aggressive share buybacks and has a commendable track record of raising its dividend for 14 consecutive years, with a dividend growth of 3.92% in the last twelve months as of Q4 2024. Moreover, the company has maintained dividend payments for an impressive 54 consecutive years, underscoring its commitment to returning value to shareholders. While analysts have revised their earnings expectations downwards for the upcoming period, they predict the company will remain profitable this year.
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