Could Higher Interest Expenses Drag Down SJM Stock?



Earnings pressure

J.M. Smucker’s (SJM) recent quarter was impressive, with its top line continuing to benefit from its Ainsworth acquisition and beating analysts’ expectation. Improved volumes and a favorable mix boosted its organic sales. However, its bottom line was weak and fell YoY (year-over-year). 

We expect J.M. Smucker’s top-line growth rate to be weak in fiscal 2020 as the company annualizes its Ainsworth acquisition and faces tough YoY comparisons. Lower coffee pricing, increased costs in the pet segment, and higher interest expenses are expected to impact its adjusted EPS growth. However, innovative products are expected to support sales. 

J.M. Smucker stock is trading at 12.8 times its estimated fiscal 2019 EPS of $8.13 and 12.5 times its estimated fiscal 2020 EPS of $8.31. Both metrics look expensive given the stock’s projected growth of 0.9% and 2.2% in those periods.

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Ratings and target price

Of the analysts covering SJM stock, nine recommend “hold,” six recommend “sell,” and two recommend “buy.” Their average target price of $104 is almost on par with its March 14 closing price of $103.85.


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