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3 Reasons To Reconsider Long Position In B&G Foods

Jul. 04, 2017 12:23 AM ETB&G Foods, Inc. (BGS)14 Comments
Alexander Valtsev profile picture
Alexander Valtsev


  • The resignation of the company’s CFO led to the share price decrease of 7%.
  • The decline of the base business may be a sign of the company’s inability to maintain achieved results.
  • Amazon’s purchase of Whole Foods turned out to be a disruption to the whole industry.

The discovery of companies in portfolios of big corporations considered to be sideliners and, therefore, not receiving a proper attention to their business is not an easy task. Even when those particular unnoticed “diamonds” are found, it is still important to dedicate enough resources for appropriate marketing campaigns and business optimization schemes to achieve their full rehabilitation. However, with all the steps undertaken correctly and a bit of luck, the acquirer can then greatly benefit by “reaping the harvest.”

This strategy was well applied by B&G Foods, Inc. (NYSE:BGS), especially in 2015 and 2016, which allowed the company to double its size and skyrocket its share price. This year, however, not everything goes smoothly for the company. Notwithstanding the high dividend yield, which is strong compared to the industry average, it may be a good time for investors to reconsider their unwavering belief in the stock, especially taking into account all the challenging external conditions and internal turmoils.

Spring and the beginning of summer of 2017 turned out to be an unfavourable time for the company. To start in chronological order, the first negative sign appeared with the resignation of Thomas P. Crimmins, the CFO of B&G, who was appointed in March 2015. In the press release dedicated to this situation, B&G stressed out that it was a voluntary decision in order “to pursue other opportunities.” Robert C. Cantwell, CEO and President of B&G Foods, said,

On March 15, 2017, Thomas P. Crimmins, our Executive Vice President of Finance and Chief Financial Officer, resigned from our company to pursue other activities” (Source: press release).

He also stated,

Mr. Crimmins’ decision was not the result of any dispute or disagreement with the Company on any matter relating to the Company’s accounting practises or financial statements” (Source: press release).

Taking into consideration

This article was written by

Alexander Valtsev profile picture
My investing experience dates back to high school years when I was first introduced to the stock market in economics classes and when I became fascinated by financial accounting. My first investing experience was rather painful: I lost a few thousand dollars on FOREX and penny stocks as I did not have a mentor or anybody knowledgeable about finance by my side. I still remember that time in details. After high school, I went to study economics with an emphasis on accounting at the University of Toronto. Four years later, with a finance degree under my belt, a decent experience gained in a few internships (where I got thanks to my soft skills, not my marks by any degree), I moved to Russia to work in investment banking, which I had decided was my passion a few years prior to that. I now live in Moscow, Russia, working as an Associate in Financial Advisory. Due to the ongoing economic crisis in Russia, invoked by the sanctions, the country's financial industry has found itself in a pathetic state. Hence, things have gotten slow at work which is why I have a lot of free time to develop my services on Seeking Alpha (I started back in 2013, my final year of school). I am a number-cruncher by nature. Hence, my analyses almost always involve financial modeling and various financial metrics' calculations. I feel that my job on Seeking Alpha is to identify investment opportunities among the smid-cap (small and medium cap) players in North America and Europe. Occasionally, I analyze a number of companies in a specific market segment in order to get a general idea about what is going on there as a whole. Sometimes, I write fairness opinion articles (I think nobody else on Seeking Alpha does that) on recent M&A transactions. I think that I bring value to my followers and other Seeking Alpha members by building analyses that are conservative in nature and present long-term views on individual companies. In my opinion, hard numbers are of more use to investors than tips, rumors, and guesstimates. Feel free to contact me here or through my email: aavaltsev@gmail.com. You may also check my Linkedin: ru.linkedin.com/in/avaltsev/ and Twitter: twitter.com/av_banker

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within 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.

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Comments (14)

bobofran3726 profile picture
Been in BGS for years but just sold my position.

I don't like that it has a large percentage of it's eggs in one basket, WMT, and the fact that I don't see it on the shelves of a lot of my local super markets any more, gives me pause.

I was also in for the dividend so I will keep an eye on it but my money will sit in safer positions for now.
Rick Whitaker profile picture
Sounds like I need to take a stroll through the local Walmart and take a look at the shelf.
Chart looks like strong support at 30.00 which seems to be approaching fast.
We are in agreement on a dividend cut concern, I like BGS products but I own the stock for the dividend.
sumark profile picture
Rick Whitaker

Not only is the dividend a partial "return of capital", but WalMart accounts for approximately 25% of BGS sales.....Numerous articles highlight how WalMart has been beating the tar out of the CPG companies (Consumer Packaged Goods) to lower lower lower their prices or risk seeing Walmart go "private label" as grocery price deflation continues to accelerate.

So, couple that with a dividend that is partial return of capital and you could quickly see that dividend get cut severely in the coming year, and the stock price along with it.

BGS is decidedly second or third tier behind the P&G, Nestle, GIS, Mondelez Big Boys....Not sure how much longer BGS can go without seeing further pricing deterioration, especially with such large relative exposure to WalMart
Rick Whitaker profile picture
Yea, yield is good, but with the pay out of 111% of E.P.S. how long can that be maintained is the real question to consider.
Long BGS and re examining my position.
The grocery business s quite different with write offs against earnings and 110 payout can be maintained for a long time if not indefinitely. I like what this company owns and sells That in the long term is what will make this company .
I'm long at an average price of about 37.50. The Amazon thing is overdone. You've got to love the yield.
SDS (Seductive Dividend Stocks) profile picture
AV - Good article, thanks! You forgot to mentioned the following downgrades:
Moody's® Rating B3 (03/29/2017)
Standard & Poor's Rating B+ (03/29/2017)
I might play contrarian when BGS prices will be in mid-20 range.
After holding this stock since 2009, I sold. I believe "Margins" will be squeezed for most food companies as a result of Amazon buying Whole Foods. Invested $ into "T".
If it were not for the nice dividend, I would be taking my $28 diamond to the pawn shop. Guys, thanks for your optimism.
The article points to three things that have hit the BGS stock price. The real issue, however, is where that price is going over the next six months. The CFO already left, and AMZN already made its bid for Whole Foods. The sales level could stay lower, or it could rebound bring the price with it. In my opinion, BGS remains a great place to invest especially if you combine it with options.

Here's an example: If you buy the stock at $36 per share (yesterday's closing price) and write the August 35 covered calls for $2.20 (the likely price at yesterday's close), you have an investment that returns over 24% on an annualized basis so long as the stock stays above 35 at August expiration. Sure, it's only a seven week investment, but returns that high combined with a safety cushion that allows the stock to decline by 3% while still returning the full profit are rare. For the last year, at least, the option premiums for BGS have been in this area. And if the stock declines, at the worst, you have bought BGS for $33.80.

If you don't want a short tem investment, then consider writing the November 40 calls for $1.00. That adds about 7% to the return until November expiration no matter what the stock price does. You do run the risk of losing the stock in November at $40, but that is 11% above the current price.

The option premiums on BGS make the investment worthwhile.
Finici profile picture

BGS does have tasty premiums - and I have done covered writes and cash puts - I must say the makers in BGS options do not give an inch, though.

It's made me some extra $$. I wouldn't quibble with your suggestions. BGS can pop several points at the drop of a hat making a close out just great.

Prodigy Disc Golf profile picture
I have a standard weight position and very happy with Drip and buying small amounts once a quarter. Diversity is my friend.
Finici profile picture
The AMZN card is a bit overplayed, as much as I really like AMZN.

I have to believe that BGS and the other products companies that supply some of the better known brand names will be sufficiently weather resistant. Seems to me that 'folks' will still buy Cream of Wheat or SJM's strawberry jam or Mondelez' Ritz.

It very well may be that the drop in share value exacerbated by this AMZN-itis will prove to be a reasonable entry point longer term - went long again. 5% is a hard thing to waste while waiting.

brian65pls profile picture
linked in shows that Thomas P. Crimmins is seeking employment months later. So exactly what new opportunity was he seeking?
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