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Smucker Sweet Enough for Triple Digits

As for earnings, the Street will be understandably focused on that as well. Now, while I do factor operating performances more than I do revenue, this is one case where being fixated too much on one number would be a mistake. As I've said, consensus estimates calls for $1.68 per share. Although I expect Smucker to meet or exceed that number, a 1-cent or 2-cent miss wouldn't be the end of the world, either.

With competition heating up from the likes of Mondelez (MDLZ) and Nestle, it would not surprise me to see sales and marketing expenses come in higher than expected. And this may nick the earnings-per-share number. Investors should also take into consideration any noticeable improvement on a GAAP basis. In that case, a "miss" may actually be a "gain," especially if the miss served to grow business in the U.S. and abroad.

If there's a question mark with Smucker at the moment, it's with the recent weakness in K-cup revenue. With the popularity of single-serve coffee from (among others) Starbucks (SBUX) and Green Mountain Coffee (GMCR), it's disappointing that Smucker saw a meaningful decline in the fiscal second quarter in its Millstone K-Cup sales. That and the price declines for peanut butter makes things a little less clear about the company's outlook for 2014.

Management did compensate for this by posting strong comps in many other categories, including Folgers Coffee and Crisco Oil. Having said all of that, it comes down to the extent management can affirm volume/price recovery in the business. What this means is that the stock will take the direction of the guidance.

Given the company's strong profits and dividend, these shares should be purchased ahead of earnings and bought even if earnings disappoint. With shares of ConAgra Foods (CAG) and Mondelez trading at a premium to Smucker while lacking the operating margin, Smucker's relative fair value suggests a share price of $102 in the 6 to 12 months.

At the time of publication, the author held no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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