J.M. Smucker Has More Upside for Investors in the Bottom of Its Jar

NEW YORK (TheStreet) -- Weak sales of its Folgers coffee brand haven't been enough to keep profit-hungry investors from pouring money into fruit-spread specialist J.M. Smucker (SJM). Smucker, headquartered in Orrville, Ohio, has offset its weak java business by growing sales in other brands like Jif peanut butter, Crisco oils, and, of course, its fruit spreads.

Combined with better pricing, which is helping to stabilize its profit margins, Smucker now looks revived. And despite the stock's already strong performance, up better than 17% in 2015, Smucker investors can expect more gains in the months and quarters ahead. So it makes sense to buy shares now, ahead of the company's fourth-quarter and full-year earnings results due out Thursday before the opening bell.

For one thing, despite the weak sales volumes and lower margins that have impacted the entire packaged food space, the sector is on the rebound, gaining almost 7% on the year, and more than 16% in the past twelve months. Not to mention, with much of the negativity regarding downbeat consumer spending already priced in, it's likely investors have seen the worst within the sector.

This certainly appears to be the case with Smucker stock. Consider: Though the shares are up 17% on the year, the lion's share of those gains (15 percentage points) have come in the past six months. Yet even with all of the money that has poured into the company, SJM currently trades at just 21 times earnings, in line with the S&P 500. Given that P/E ratio, it's tough to suggest that SJM is undervalued. At worst, though, we can agree SJM is fairly valued. But that doesn't mean there's not a potential upside for investors.

Among the eleven analysts covering Smucker, the stock has an average 12-month price target of $122.50, which would be a 3% gain from the $118.42 it opened at on Tuesday. Granted, that's nothing to write home about. But consider that its high analyst target is $130: If it hits that, investors today would see 10% gains.

Still not impressed? SJM has become quite shareholder-friendly recently, taking more than 5% of its outstanding shares off the market over the past twelve months with an aggressive buyback plan. The company's current authorization -- when completed -- is on track to reacquire 10% of its shares. And why do companies repurchase their stock? Because they think the shares are cheap and are likely to climb higher over time. Thursday's results may prove to be a catalyst to that continued uptrend.

And Smucker also pays a decent 64-cent quarterly dividend that yields 2.20% annually. 

For the quarter that ended April, the analysts' average estimate calls for SJM to report EPS of 99 cents on revenue of $1.34 billion. That would be an 18% decline in earnings, with revenue up 10%. For the full year, the average estimate calls for an earnings decline of 4.6% to $5.38 per share, while revenue is projected to be flat at $5.57 billion.

All told, these projections reflect a company -- and an industry -- that have faced some struggles. But as evidenced by the stock's moves so far, investors are pleased with Smucker's progress. That it's projected to grow full-year 2016 earnings by almost 9% after a -- projected -- 4.6% decline this year is encouraging. And this explains why the company is quickly buying back its own shares.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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