J.M. Smucker ( NYSE: SJM ) was upgraded to Neutral at UBS after selling a number of pet foods brands to Post Holdings ( POST ).
The company announced last week that a number of brands, including 9Lives, Kibbles 'n Bits and Rachael Ray Nutrish, as well as related manufacturing and distribution plants in Pennsylvania and Kansas will be sold to Post Holdings. The price tag on the deal totals about $1.2B .
“With the sale of ~50% of its Pet portfolio, including many brands that were market share donors over the past five years, particularly Rachel Ray Nutrish, we believe the company is likely to deliver more consistent top line growth in the future and will improve its margin profile,” the bank’s analyst wrote on Friday. “If SJM were to use the entire $700M of cash proceeds to repurchase shares, we estimate the company could eliminate most, if not all, of the dilution from the transaction.”
Overall, the bank’s analysts indicated that the divestiture leaves the former Sell rating less appropriate, prompting an upgrade to Neutral. Shares of the consumer staples producer gained about 2% on Friday and continued modest gains in Monday’s premarket trading.
Read more on takeover speculation swirling around Freshpet .
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J.M. Smucker upgraded as UBS applauds pet food divestiture