Linked here is a detailed quantitative analysis of J.M. Smucker Comp. (NYSE:SJM). Below are some highlights from the above linked analysis:
Company Description: J.M. Smucker Co.'s products include coffee, fruit spreads, peanut butter, shortening and oils, ice cream toppings, health and natural foods, and beverages.
Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
SJM is trading at a premium to all four valuations above. Since SJM's tangible book value is not meaningful, a Graham number can not be calculated. The stock is trading at a 49.4% premium to its calculated fair value of $52.33. SJM did not earn any Stars in this section.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
SJM earned one Star in this section for 2.) above. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. The company has paid a cash dividend to shareholders every year since 1949 and has increased its dividend payments for 14 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
1. NPV MMA Diff.
2. Years to > MMA
The NPV MMA Diff. of the $674 is below the $2,100 target I look for in a stock that has increased dividends as long as SJM has. If SJM grows its dividend at 8.8% per year, it will take 5 years to equal a MMA yielding an estimated 20-year average rate of 3.6%.
Memberships and Peers: SJM is a member of the S&P 500 a member of the Broad Dividend Achievers™ Index. ConAgra Foods, Inc (NYSE:CAG) with a 3.6% yield, Kraft Foods Inc. (KFT) with a 3.1% yield and McCormick & Co. Inc. (NYSE:MKC) with a 2.5% yield.
Conclusion: SJM did not earn any Stars in the Fair Value section, earned one Star in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a total of one Star. This quantitatively ranks SJM as a 1-Star Very Weak stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $52.02 before SJM's NPV MMA Differential increased to the $2,100 minimum that I look for in a stock with 14 years of consecutive dividend increases. At that price the stock would yield 3.7%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $2,100 NPV MMA Differential, the calculated rate is 12.6%. This dividend growth rate is higher than the 8.8% used in this analysis, thus providing no margin of safety. SJM has a risk rating of 2.25 which classifies it as a Medium risk stock.
SJM's dominant coffee brands gives retailers many incentives to stock their products to increase store traffic. Acquisitions and cost reductions should improve SJM's results over time. A decline in SJM's coffee segment from lower unit sales and potential higher coffee costs will likely limit near-term profits. Unfavorable dividend fundamentals, including a Free Cash Flow Payout of 118% and trading in excess of my $52.33 calculated fair value, will keep me on the sidelines for now.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Disclosure: At the time of this writing, I held no position in SJM (0.0% of my Dividend Growth Portfolio). See a list of all my dividend growth holdings here.