Smucker's Delivers Something Sweet For Bulls and Bears Alike
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By almost any measure, J.M. Smucker’s (NYSE:SJM) delivered a solid earnings report. The company beat analysts’ non-GAAP EPS earnings by 23 cents. And Smucker’s also generated revenue of $1.92 billion which beat analysts’ estimates by $40 million.
That would be sweet news for bullish investors who are enjoying a 19% gain in SJM stock in 2021, which outpaces the S&P 500 Index. But you don’t have to dig too far to find something to satisfy the appetite of investors with a bearish outlook on the company.
The revenue number of $1.92 billion was an 8% year-over-year decline. And management confirmed that revenue will be down 2% to 3% for the full year. That was higher than the drop that analysts expected.
This was the first quarterly earnings report in which Smucker’s results “lapped” its pandemic results. In the prior quarter in 2020, revenue got a bump as Americans sheltered in place and stocked their pantries.
However, as the economy reopens, the sentiment among analysts and investors is that revenue will track back to pre-pandemic levels. In which case, SJM stock looks a bit extended. That’s my feeling as well. But the purpose of this article is to let you decide for yourself. So let’s get to it.
Not Immune From Supply Chain Woes
Although many consumers think of Smucker’s for its jams and jellies, two of Smucker’s strongest growth drivers of revenue were coffee and pet food. However, both categories are expected to face supply chain disruptions perhaps for the remainder of 2021. Management acknowledged this reality when issuing future guidance:
“The pandemic and related implications, along with cost inflation and volatility in supply chains, continue to impact financial results and cause uncertainty and risk for the fiscal year 2022 outlook. Any manufacturing or supply chain disruption, as well as changes in consumer mobility and purchasing behavior, retailer inventory levels, and macroeconomic conditions could materially impact actual results.“
The obvious solution to a rise in commodity prices and other inflationary pressures is to raise prices at retail. At this point, retailers seem to be accommodating to the price changes, it remains to be seen whether consumers will be as accommodating.
The Dividend Looks Secure
Of course, Smucker’s is not a growth stock per se. In fact, with 19 consecutive years of dividend growth, it’s becoming a tasty stock for income investors. Smucker’s last raised its dividend in July 2020 and investors will be paying close attention to see if the company continues this pattern in 2021.
Smuckers Looks Overvalued
The sentiment in the analyst community is that SJM stock is overvalued. The 12-month consensus price target is $116.27 per share. As of this writing, that means analysts are projecting the stock may drop close to 15%. That would take out nearly all of the gains the stock has made in 2021.
What should give investors more reason for concern is that there are no price targets that put the stock at or above its current level. So how should investors look at SJM stock?
Simply put, when a stock is overvalued, it means that tomorrow’s growth is largely priced into the stock today. That doesn’t mean that Smucker’s is a bad investment. You just may want to wait for a pullback before adding shares.
After earnings, SJM stock is pushing up against a key level of resistance around $138.50. If it can push past this level in a meaningful way there may be some additional run for the stock. After all, in 2021 the heart wants it wants and investors want stocks to go up. But if it fails to push past this level, investors should look to see if support holds at around $132. If the stock falls below that, it may have much further to drop.
The J. M. Smucker is a part of the Entrepreneur Index, which tracks some of the largest publicly traded companies founded and run by entrepreneurs.