SJM - Bank of America increases bullishness on J.M. Smucker ahead of earnings

Bank of America analyst Peter Galbo advised clients that J.M. Smucker’s ( NYSE: SJM ) is an underappreciated consumer staples stock on Wednesday.

He commented that the stock’s valuation has lagged its peers, an unfair punishment for a company with strong near and long-term catalysts, in his view. Galbo is particularly optimistic on the jelly manufacturer’s prospects for its earnings report on August 23.

“We believe there is upside to 1Q sales/EPS and FY23 EPS as the Jif peanut butter recall moves into the rear view,” he wrote. “Long term, we believe SJM’s more focused portfolio after several years of divestitures positions the company well as consumer wallets tighten, given lower price elasticities in the remain-co portfolio relative to both historical SJM and to center-store packaged food peers.”

The bank’s analysis also suggests higher pricing will push profits past Wall Street consensus, as the Ohio-based company’s products court less elastic demand characteristics than many peers. Additionally, the company’s move to divest low-margin businesses should benefit the stock in the long term.

As such, Galbo upgraded the stock from “Neutral” to “Buy” alongside a raised EPS forecast for the full year and a price target hike to $155 from a prior $145.

“Over the longer term, we view the set-up for SJM as attractive, as the company has streamlined its portfolio through divestitures over the past several years, which while coming in at less than attractive multiples, resulted in less private label exposure (in the case of cooking oils) and lower overall portfolio elasticity (in the case of baking staples),” he concluded. “In addition, we believe SJM is cognizant of the market’s view on M&A and would likely pursue deals that are closer, tuck-in acquisitions within existing categories (Retail Consumer Foods, Coffee or Pet Snacks, not dog food) rather than large scale transformational deals.”

Galbo suggested snacking assets are the most likely category to court interest.

Read Goldman Sachs’ insights on resilient margins for the food producer .

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