On September 26, 2023, JM Smucker Co (SJM, Financial) reported a daily gain of 1.51%, despite experiencing a 3-month loss of -14.71%. With a Loss Per Share of $0.16, the question arises: is the stock modestly undervalued? This article aims to answer that question by providing a thorough valuation analysis of JM Smucker Co (SJM).
Company Introduction
J.M. Smucker is a packaged food company that primarily sells through the U.S. retail channel (84% of fiscal 2024 forecast revenue), with the remaining share split between foodservice and international (primarily Canada). Retail coffee is now its largest category (around 36% of fiscal 2024 sales) with brands Folgers and Dunkin'. Pet foods (about 23% of 2024 sales) holds leading brands like Milk-Bone and Meow Mix. Of its remaining, approximately 25% comes from consumer foods, primarily peanut butter and jelly, through brands Jif and Smucker's.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance.
According to GuruFocus' valuation method, the stock of JM Smucker Co (SJM, Financial) is estimated to be modestly undervalued. The GF Value Line indicates that if the stock's share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. Conversely, if the stock's share price is significantly below the GF Value Line, the stock may be undervalued and have high future returns. Currently, JM Smucker Co's share price is $128.41, with a market cap of $13.10 billion, suggesting the stock is modestly undervalued.
Given this undervaluation, the long-term return of JM Smucker Co's stock is likely to be higher than its business growth.
JM Smucker Co's Financial Strength
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Hence, it is crucial to carefully review the financial strength of a company before deciding to buy its stock. A great starting point for understanding the financial strength of a company is to look at the cash-to-debt ratio and interest coverage. JM Smucker Co has a cash-to-debt ratio of 0.16, which is worse than 70.31% of 1795 companies in the Consumer Packaged Goods industry. GuruFocus ranks the overall financial strength of JM Smucker Co at 6 out of 10, indicating that the financial strength of JM Smucker Co is fair.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. JM Smucker Co has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $8.50 billion and a Loss Per Share of $0.16. Its operating margin is 15.4%, which ranks better than 85.93% of 1841 companies in the Consumer Packaged Goods industry. Overall, the profitability of JM Smucker Co is ranked 7 out of 10, indicating fair profitability.
Growth is a crucial factor in the valuation of a company. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of JM Smucker Co is 5.3%, ranking worse than 54.08% of 1716 companies in the Consumer Packaged Goods industry. The 3-year average EBITDA growth rate is -28.3%, ranking worse than 90.62% of 1524 companies in the same industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate a company's profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, JM Smucker Co's ROIC is -1.87 while its WACC came in at 5.38.
Conclusion
In conclusion, the stock of JM Smucker Co (SJM, Financial) is estimated to be modestly undervalued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 90.62% of 1524 companies in the Consumer Packaged Goods industry. To learn more about JM Smucker Co stock, you can check out its 30-Year Financials here.
To find out the high quality companies that may deliver above-average returns, please check out GuruFocus High Quality Low Capex Screener.
