J.M. Smucker and Campbell Soup Rise on Goldman Sachs Upgrades

Following ratings upgrades from Goldman Sachs GS, shares of food producers J.M. Smucker SJM and Campbell Soup CPB rose more than 1.5 percent Monday. These rises occurred even as the S&P 500 Index fell around 0.4 percent. Goldman upgraded J.M. Smuckers to Buy from Neutral and Campbell Soup to Buy from Sell. J.M Smucker's Favorable Cost Outlook and Cash Returns "Buy SJM to benefit from an advantaged cost profile, underappreciated end-user demand growth and best-in-class cash returns to shareholders," said Goldman in a note. Goldman said that J.M Smucker's exposure to coffee and peanuts gives the company a favorable cost outlook. This might represent an advantage relative to companies with exposure to grain, dairy or protein prices, which Goldman said are expected to be elevated. Smucker's exposure to coffee intensified when the company announced that it finished acquiring Sara Lee's coffee business in January 2012 and Rowland Coffee Roasters' coffee business in May 2011. J.M. Smucker has announced millions of dollars of shareholder cash returns in 2012. On July 18, the peanut butter, coffee and jelly producer announced a quarterly dividend increase to $0.52 per share from $0.48 per share. This followed a January announcement of a $5 million share increase to the company's share repurchase authorization. In June, Smucker reported fourth-quarter earnings per share that beat Wall Street analyst estimates, after missing analyst estimates for two consecutive quarters. The company trades at a forward price-to-earnings ratio near 14. Campbell Soup's Improving Industry Data and Innovation "Soup category growth is no longer a laggard in packaged food and has actually outperformed in the last two months," explained Goldman, citing Nielsen data. The investment bank also said its proprietary data places Campbell's Soup amongst brands with the highest equity in consumer goods. Moreover, Goldman said Campbell Soup is achieving improved innovation by focusing on "hearty, filling" foods in place of a previous focus on "Better-for-you" foods. Specifically, Goldman mentioned Campbell's new Mama's Boy advertising campaign and Go! soups as innovative concepts. Goldman said it views "taste and satiety" as core strengths of Campbell''s "ready-to-serve" soup brands. Apart from soups, Goldman expects Campbell to see growth in Pepperidge Farm volumes for the second half of 2012 based on positive implications for crackers and bread from snack trends. On August 6, Campbell announced that it finished acquiring fresh food producer Bolthouse Farms. Campbell Soup trades at a forward price-to-earnings ratio around 13. The soup, snack and beverage producer has beaten analyst earnings per share expectations for each of the previous five quarters and is expected to report fourth-quarter earnings on September 4.

Disclosure: At the time of this writing, I did not own shares of any companies mentioned in this post.