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J.M. Smucker Co: Cash Flow Valuation Update

|Includes: J. M. Smucker Company (SJM)

Current Price: ~ $75/share
Projected Yield: ~ 2.57%

Smucker manufactures and distributes coffee, fruit spreads, peanut butter, shortening and oils, baking mixes and frostings, and natural products under its portfolio of category-leading brands in North America. Notable brands under the Smucker umbrella include Smucker's, Folgers, Dunkin' Donuts brand coffee, Jif, Crisco, Pillsbury, and Hungry Jack. Of these brands, seven are product category leaders in the United States, and eight brands hold a number-one spot in Canada.

Estimated WACC for the firm today is 5.51% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:

Year FCF $Millions
2003 116
2004 26
2005 107
2006 135
2007 216
2008 115
2009 336
2010 576
2011 211
2012 457

Average Annual Growth FCF: ~ 66%

CAGR FCF: ~ 16%
Consensus Forecast Industry 5-Year Growth: ~ 13% per year

Consensus Forecast Company 5-Year Growth: ~ 8% per year

Internal Growth Rate: ~ 3%

Sustainable Growth Rate: ~ 5%

Scenario 1
Average FCF (2012, 2011, 2010) is $415 million

  • Start at $415 million FCF
  • Assume a 5-year growth rate in FCF of 8% per year, then no growth or 0% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year FCF $Millions
0 415
1 448
2 484
3 523
4 565
5 610
Terminal Value 11961

The firm's future cash flows, discounted at a WACC of 5.51%, give a present value for the entire firm (Debt + Equity) of $11376 million. If the firm's fair value of debt is estimated at $2444 million, then the fair value of the firm's equity could be $8932 million. $8932 million / 110 million outstanding shares is approximately $81 per share and a 20% margin of safety is $65/share.

Scenario 2

All else being equal,

  • Discount the firm's future FCFs at 6.51%:

Discounted Cash Flow Valuation

Year FCF $Millions
0 415
1 448
2 484
3 523
4 565
5 610
Terminal Value 10116
  • Present Value of the entire firm (Debt + Equity): $9544 million
  • Value of Equity: $7100 million or $65/share
  • 20% margin of safety is $52/share

Sources

Morningstar.com

Yahoo! Finance

Smuckers.com

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.