Low growth expectations are a concern
While the J.M. Smucker Company’s (SJM) recent financial performance has been impressive, the expected slowdown in its sales could limit the upside in its stock. J.M. Smucker’s top line benefited from its acquisition of Ainsworth. However, its top line growth rate is expected to slow down and to stay slow as the company annualizes its acquisition. However, an improved mix and better volumes could continue to support its sales.
We expect J.M. Smucker’s bottom line to return to growth and stabilize in fiscal 2020. However, higher costs in its Pet segment and increased interest expenses are expected to limit the company’s earnings growth rate to the low- to mid-single-digit range.
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The bottom lines of packaged food companies such as General Mills (GIS), Conagra Brands (CAG), and the Campbell Soup Company (CPB) are taking hits from higher interest expenses driven by the debt they’ve taken on to finance their acquisitions.
J.M. Smucker stock is up 24.7% on a YTD (year-to-date) basis and has outperformed the S&P 500 Index. SJM is trading at a forward PE multiple of 14.1x, which looks unattractive given its projected growth rate of ~4% for fiscal 2020.
In comparison, General Mills, Conagra Brands, and the Campbell Soup Company are up 30.7%, 32.4%, and 16.0%, respectively.