B&G Foods' Push Into Natural Snack Foods Makes Stock A Buy

| About: B&G Foods, (BGS)

B&G Foods (NYSE:BGS) is continuing its acquisition binge with its latest purchase. Long known as the food company that acquired unloved brands, the latest acquisition continues B&G's push into natural foods. Find out why the small food company should be in your portfolio.

On Monday, B&G announced its acquisition of Robert's American Gourmet Food. The move once again strengthens B&G in their push into all natural snack foods. For $195 million, B&G gains three brands: Pirate's Booty, Smart Puffs, and Original Tings. The acquired company, also known as Pirate Brands, was founded in 1987. All three snack styles are trans-fat and gluten free.

The acquisition will help boost revenue for B&G in the current fiscal year. The company believes the acquisition will close in July of 2013 and be immediately accretive to earnings per share and free cash flow. B&G is putting an early estimate on annual sales of $80 to $90 million for the newly acquired company. The deal is also expected to add $18 to $20 million in adjusted EBITDA.

Since October, B&G Foods has pushed hard into natural snack foods.

  • October 31, 2012: Acquired New York Style and Old London brands. The deal also gave B&G JJ Flats and Devonsheer brands. The acquisition came with a purchase price of $62.5 million.
  • May 7, 2013: Acquired True North brand from DeMet's Candy. True North sells nut clusters in three flavors: almond pecan crunch, chocolate nut crunch, and cashew crunch.

In the most recent first fiscal quarter, B&G Foods reported net sales growth of 8.8% to $171. 2 million. The October acquisition of New York Style/Old London added $11.3 million in sales. Net sales from base products increased on 1.6%. Net income increased 17% to $19.6 million. Earnings per share came in 5.7% higher than the previous year at $0.37.

Shares of B&G trade close to their fifty two week highs above $30. Analysts on Yahoo Finance see the company earning $1.52 per share in fiscal 2013. Revenue is estimated to increase 8.6% to $688.6 million. With the strength of the Old London and New York Style integration and the most recent acquisitions, I see B&G easily passing estimates on both revenue and earnings per share. In fiscal 2014, analysts see revenue increasing only 2.7% to $707.0 million. I find that number hard to believe considering the recent acquisitions and the likelihood that B&G will continue to acquire companies that will have a huge impact on fiscal 2014 sales.

For me, I see B&G following a similar path of Boulder Brands (NASDAQ:BDBD). Formerly known as Smart Balance, I highlighted the growing potential of the company from its huge market share in natural foods and gluten free foods. Boulder shares are up 78% since my original 2011 recommendation. With three recent acquisitions all relating to natural snack foods, B&G is clearly setting the table for dominance in one of the fastest growing food categories.

I took an in depth look at all of the company's brands back in May of 2012. That came before the company's push into natural foods. At that time, I did point out that a recent acquisition from Unilever gave B&G an entry into consumer products. I still believe B&G will make a push into consumer products with more acquisitions and could become a mini Unilever. Another highlight of my article was the recognition of B&G Foods as a gluten free play. The recent acquisitions signal that is a coming strength for the company.

Back in May of 2012, I highlighted B&G as a strong investment. Shares are up over 30% since that time thanks to recent acquisitions. At the time I stated, "the company clearly is a winner over the long term and will continue to grow through smart, strategic acquisitions." That statement proves true today and keeps me bullish on shares going forward.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in BGS over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.