The J.M. Smucker Company
Purchased a full position in The J.M. Smucker Company (SJM) at $43.42 on 1/31/2006.
Company Description: SJM manufactures and markets food products on a worldwide basis. The company’s principal products include coffee, peanut butter, shortening and oils, fruit spreads, baking ingredients, beverages and condiments.
Screen: SJM ranked in the top 150 of our Large Cap screen due to its top 1/3 ranking in Earnings Yield, Returns on Capital and Balance Sheet. This indicated a company with strong operations trading at a reasonable valuation.
- Quality of Business: SJM had a profitable business with a strong brand and the ability to leverage its relationship with customers by gaining store shelf space.
- Persistence of Opportunity: Given its strong brands, SJM had some pricing power and raw materials available from multiple suppliers. SJM is a consumer staple and therefore not prone to high cyclicality.
- Qualitative Characteristics: Insiders owned almost 8% of SJM at the time, giving management a vested interest in the company. The company had a history of increasing its dividend.
- Valuation: SJM’s Earnings Yield was at a peer average and above average historically. We assigned a price target of $78/share based on our cash flow model. The stock traded for only 58% of its intrinsic value- below our 80% target.
- We sold SJM at $85.14 on 10/26/2012 due to it reaching our price target (which had been revised) and its ever increasing reliance on Wal-Mart as a customer (from 16% to 26% of sales).
- SJM’s total return was 169%; Russell 1000′s total return was 28%.