We came across a bullish thesis on The J. M. Smucker Company (NYSE:SJM) on Safe Harbor Stocks’ Substack by Kristopher Rymer. In this article, we will summarize the bulls’ thesis on SJM. The J. M. Smucker Company (NYSE:SJM)’s share was trading at $109.16 as of Jan 6th. SJM’s trailing and forward P/E were 22.05 and 10.37 respectively according to Yahoo Finance.
A close-up shot of a store shelf stocked with pet food and supplies.
JM Smucker is a reliable consumer staple company, known for its durable competitive advantages and stable growth. Established in 1897, the company has grown into a $9 billion powerhouse, driven by a diverse portfolio of iconic brands such as Jif, Uncrustables, Milk-Bone, and Café Bustelo, with over 90% of U.S. households purchasing its products. The company’s strong family ownership, with Richard and Timothy Smucker holding 3.2% of the company, further underscores the alignment of management’s interests with long-term shareholder value.
The company’s success has been propelled by strategic acquisitions, including Big Heart Pet Brands in 2015 and Hostess in 2024, which have allowed Smucker to focus on high-growth categories such as snacking, coffee, and pet food. The purchase of Uncrustables in 1998 for just $1 million has turned into a nearly $1 billion annual revenue brand. This track record highlights Smucker’s ability to turn small investments into large revenue-generating assets.
Smucker’s revenue is derived from several core business segments. The snacking and spreads segment, led by Uncrustables and Jif, has consistently driven growth through innovation and marketing efforts. The pet food and treats segment, which includes Milk-Bone and Meow Mix, has benefited from trends in pet humanization, improving its margin profile. The coffee segment, represented by brands like Café Bustelo and Dunkin’, has capitalized on premiumization and innovation, continuing to lead in its category. The sweet baked goods segment, bolstered by the addition of Hostess, strengthens Smucker’s position in the fast-growing sector. Additionally, Smucker’s international and Away From Home channel is projected to exceed $750 million in sales by FY2025, offering another growth avenue for the company.
Smucker’s growth strategy was recently outlined during its 2024 Investor Day, where leadership highlighted several key platforms for expansion. The Uncrustables brand is set to see continued growth through expanded manufacturing capacity, new varieties, and increased distribution. The Hostess brand is targeting 4% long-term sales growth, driven by a revitalized marketing strategy and product innovation. The pet food segment is expected to achieve 3% to 4% long-term net sales growth, with Milk-Bone and Meow Mix maintaining their leadership positions. Meanwhile, Smucker’s coffee business is projected to see modest growth, bolstered by innovations in ready-to-drink coffee and continued strong performance from Café Bustelo.
The company’s growth algorithm targets low single-digit net sales growth annually, with a mid-single-digit increase in operating income and high-single-digit growth in adjusted EPS, driven by productivity and margin expansion. Smucker’s free cash flow conversion remains strong, supporting continued investment in growth initiatives and delivering consistent shareholder returns exceeding 10% in the long run.
A hallmark of Smucker’s strategy is its disciplined capital allocation. Under CEO Mark Smucker, who has been at the helm since 2016, the company has streamlined its portfolio, focusing on high-margin, high-growth categories. The company’s dividend history, with 23 consecutive years of increases, further demonstrates its commitment to shareholders. Smucker’s debt reduction strategy includes a $500 million annual debt paydown, targeting a leverage ratio below 3.0x net debt-to-EBITDA by FY2027.
Despite its many strengths, Smucker faces certain risks. Its portfolio includes some mature brands, such as Jif and Folgers, which dominate slow-growing categories. Additionally, its heavy reliance on Walmart for 33% of revenue creates pricing pressures. Smucker’s conservative strategy, while ensuring stability, limits its potential for aggressive growth, and its acquisitions, such as the $5.6 billion Hostess deal, have reduced near-term free cash flow.
At an attractive valuation of ~10.8x NTM EPS and a 7.6% free cash flow yield, Smucker is well-positioned for income-focused investors. The company’s stable cash flows, resilient product portfolio, and robust dividend make it an appealing choice for conservative, long-term investors. While its growth may not be as aggressive as other companies, Smucker’s ability to weather economic downturns and its strategic growth initiatives provide a level of resilience that makes it a solid investment in uncertain markets.
The J. M. Smucker Company (NYSE:SJM) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 30 hedge fund portfolios held SJM at the end of the third quarter which was 34 in the previous quarter. While we acknowledge the risk and potential of SJM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SJM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.