The J. M. Smucker Company SJM on Monday, April 20 updated its fiscal 2020 financial outlook on the back what it called “unprecedented customer and consumer demand” amid the coronavirus pandemic that has seen more people eat at home and stock up on food. So, let’s dive into why investors might want to consider buying shares of SJM during a time of unprecedented economic uncertainty.
The Coronavirus & Consumer Staples
Roughly 26 million Americans have filed for unemployment benefits since the coronavirus social distancing and stay-at-home push began. Despite the massive economic downturn, Wall Street and investors have pushed stocks higher, with the S&P 500 up roughly 25% from its March 23 lows.
But stocks could fall again as more companies start to pull their guidance and report their first quarter earnings results. For example, our most recent Zacks estimates call for overall S&P 500 earnings to fall over 14% in Q1, down from the +4% projected in January. And things are expected to get worse, with Q2 earnings now expected to plummet -28.1% and Q3 expected to suffer a -15.3% decline (also read: Making Sense of the Earnings Picture During the Coronavirus).
Energy, transportation, autos, consumer discretionary, and other sectors look as though they will be hit the hardest. However, Consumer Staples stocks look set to see their first quarter earnings climb 9% on 3.6% higher revenues, based on our Zacks estimates.
J. M. Smucker’s Simple Pitch
J. M. Smucker’s portfolio features over 40 brands that it boasts “are found in 90% of U.S. homes.” The company’s brands include Jif peanut butter, Folgers coffee, Milk-Bone dog treats, and much more. SJM has also expanded through acquisitions of both upstart and established brands.
The nearby chart shows that SJM stock has crushed its industry in 2020, up 13% compared to the Food Market’s 14% decline. Clearly, it’s no easy task to be up this big when the S&P 500 has tumbled over 13%. That said, the stock is down around 4% in the last 12 months and up around 2% in the last five years. This still comes in above its industry’s 7% decline.
J. M. Smucker is also trading at a discount compared to its peer group, at 14.3X trailing 12-month earnings vs. 16.2X for a group that includes Kellogg K, Campbell Soup CPB, Conagra CAG, and more.
Along with solid value, SJM’s dividend yield rests at 2.99% to top the 10-year U.S. Treasury’s 0.60%, the S&P 500’s 2.07% average, and its industry’s 0.32%. Plus, the company’s payout ratio sits at a sustainable 43%.
As we touched on at the top, J.M. Smucker on Monday raised its fiscal year outlook on “unprecedented customer and consumer demand” in its fourth quarter. The company now projects its net sales will slip only 1%, compared to its previous guidance of a 3% drop, “primarily due to increased demand across all U.S. and Canadian retail channels, slightly offset by a decline in products sold in away from home channels, which represent less than 10% of the Company's total net sales.”
J.M. Smucker also said it expects to exceed the high end of its previous adjusted earnings per share guidance. Our current Zacks estimates call for SJM’s adjusted Q4 earnings to climb 7.2% to hit $2.23 a share. Meanwhile, the company’s fourth-quarter fiscal 2020 revenue is projected to jump 6.4% to $2.02 billion.
J.M. Smucker’s top and bottom lines are expected to jump again in the first quarter of its fiscal 2021. We can also see that its earnings revision picture has turned far more positive recently, which helps it earn a Zacks Rank #1 (Strong Buy).
SJM also sports a “B” grade for Value and an “A” for Momentum in our Style Scores system, and it is part of an industry that rests in the top 17% of our more than 250 Zacks industries.
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Conagra Brands Inc. (CAG) : Free Stock Analysis Report
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