Why SJM Stock Is Underperforming Peers

  • Pressure on J.M. Smucker’s sales and margins has limited its stock.
  • Credit Suisse has downgraded SJM stock.

This year, J.M. Smucker (SJM) stock has underperformed most peers and broader markets. Whereas SJM stock was up 13.1% year-to-date as of yesterday, the S&P 500 was up 23.4%. Peers General Mills (GIS), Campbell Soup (CPB), Conagra Brands (CAG), Hershey (HSY), and Mondelēz (MDLZ) were up 35.1%, 43.6%, 32.5%, 36.0%, and 31.7%, respectively.

Why is SJM stock lagging behind peers?

J.M. Smucker started fiscal 2020 on a soft note. The company missed Wall Street’s average estimates and its own guidance. CEO Mark Smucker blamed lower coffee and peanut butter prices and shipment timing for the weak performance.

Management lowered its fiscal sales and earnings outlook, anticipating sales and margin headwinds to continue in the second quarter. J.M. Smucker reduced its fiscal 2020 adjusted EPS forecast to $8.35–$8.55 from $8.45–$8.65, and its revenue growth forecast to 0% to -1% from 1%–2%.

Analysts’ average estimates are lower than J.M. Smucker’s forecast. Wall Street expects SJM to post adjusted EPS of $8.28 in fiscal 2020, and for its sales to fall 1.7%.

Revisiting SJM’s first quarter

In the first quarter, SJM’s revenue fell 6% YoY (year-over-year) to $1.78 billion, missing analysts’ estimate of $1.87 billion. Its volumes fell 3%, and its pricing fell 1% owing to deflation in coffee and peanut butter prices. The company’s adjusted EPS fell about 11% YoY to $1.58, well below analysts’ expectation of $1.74.

Meanwhile, General Mills’ revenue also missed Wall Street’s estimates and fell YoY due to lower volumes across most of its business segments. However, its margins expanded significantly and its earnings beat estimates. Conagra Brands also missed Wall Street’s sales estimate in the first quarter. However, the company’s robust second-half outlook has supported its stock.

Credit Suisse downgrades SJM stock

Yesterday, Credit Suisse analyst Robert Moskow downgraded SJM stock to “underperform” from “neutral” and lowered its price target from $100 to $95. The new price target is about 10% lower than SJM’s closing price of $105.78 yesterday.

We believe soft sales and margin headwinds could limit any upside in SJM stock. Competition in the premium dog food market and lower coffee and peanut butter prices could affect J.M. Smucker’s sales growth, margins, and EPS.

In the second quarter, analysts expect SJM’s sales and earnings to continue to decline. Of the 13 analysts covering the stock, nine suggest “hold” and four suggest “sell.” Their average target price of $105.91 for SJM stock implies no upside.