On Tuesday, CFRA made an adjustment to the price target for J.M. Smucker (NYSE:SJM), increasing it from $131.00 to $137.00, while retaining a Hold rating on the stock. The revision reflects a new 12-month target set at 13.5 times the firm's fiscal year 2025 (ending in April) earnings per share (EPS) estimate, which has been raised to $10.16 from the previous $10.04.
The EPS forecast for fiscal year 2024 has also been increased to $9.76 from $9.37.
The firm justifies the target increase, noting that the current price-to-earnings ratio is below the long-term average of 16 times. The rationale for the discount includes J.M. Smucker's heightened leverage, now at 4.3 times following the acquisition of Hostess, and specific challenges anticipated in fiscal year 2025 due to the recently divested Pet Foods business.
J.M. Smucker reported a strong fiscal third quarter, with adjusted EPS of $2.48, marking a 12% year-over-year increase and surpassing expectations by $0.21. Comparable sales saw a 6% rise, driven by a combination of volume/mix growth and pricing improvements.
The company also experienced a significant enhancement in operating margins, which expanded by 440 basis points year-over-year to 20.5%, aided by gross margin expansion and a reduction in marketing expenses, which fell by 11% compared to the previous year.
Despite the positive performance, CFRA anticipates an increase in marketing expenditures in upcoming quarters to support the Hostess brand, which J.M. Smucker has recently acquired. The firm also signals some uncertainty surrounding the fiscal year 2025 outlook due to potential overhead costs that might remain after the sale of the Pet Foods segment.
The analyst from CFRA suggests that fiscal year 2025 may witness below-target growth for J.M. Smucker, projecting an EPS growth of about 4% compared to the 9% expected growth for fiscal year 2024. This projection is set against the backdrop of the company's long-term goal of achieving high-single-digit EPS growth.
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