The J.M. Smucker Company (SJM), Campbell Soup Company (CPB): Acquisitions – A Shortcut To Achieving Rapid Growth

ConAgra Foods, Inc. (NYSE:CAG) is another company operating in this industry. The company acquired Ralcorp Holdings, one of the largest packaged food companies in North America, in the beginning of FY 2013. The synergies resulting from this takeover are expected to fully materialize by the end of FY 2017. On comparable grounds, the diluted EPS is expected to be $2.40, up from $1.85 in FY 2014. The double-digit growth in the consumer foods segment, along with the substantial earnings contribution from Ralcorp, were the drivers of this 30% increase in earnings. The company is also looking forward to realizing pre-tax cost synergies of $300 million by 2017.

Conclusion

In the midst of the current market dynamics, The J.M. Smucker Company (NYSE:SJM) has taken the right step by acquiring Enray to widen its product portfolio. The company’s forward P/E is projected to be 15.7 times, compared to the industry average of 19.2 times. This indicates a return potential of 22.29% in this undervalued stock. The company is also expected to raise its dividend yield to 2.15%, from 1.99%, in 2013.

The recent acquisitions by Campbell Soup Company (NYSE:CPB) ensure a bright future for the company. Although the company’s leverage level is quite high, with its debt to equity currently reported at 2.2x, compared to the industry average of 1x, it is efficiently utilizing the funds to generate an exorbitantly higher ROE (ttm) of 57.4% in an industry where 21.6% is the normal ROE level. The company also provides a regular income stream to its shareholders and is expected to raise its dividend yield to 2.55%, from 1.28%, in 2013.

As per the statistics released by the management of ConAgra Foods, Inc. (NYSE:CAG), the company’s diluted EPS will grow at a minimum of 10% during FY 2015-17. However, keeping in view the industry average ROE of 21.6%, the company’s current ROE (ttm) of 16% and the future earnings increase is an insufficient return for investors who can rather invest in Campbell Soup Company (NYSE:CPB).

 The article Acquisitions – A Shortcut To Achieving Rapid Growth originally appeared on Fool.com and is written by Awais Iqbal.

Awais Iqbal has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 

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