Jefferies Downgrades Smucker To Hold

Jefferies analysts, Akshay Jagdale, Lubi Kutua, and Mathew Fishbein, have downgraded the shares of J M Smucker Co

to a Hold rating from Buy citing risk/reward fairly balanced. In a research note to clients, the analysts boosted their price target to $143.00 from $140.00 The brokerage said that J M Smucker's relative valuation discount not adequately factored in strong LT organic growth prospects & synergies from Pet Food; DNKN K-Cup accretion; and benign commodity costs. The analysts pointed out that after its initiation in December last year; the stock has outperformed & surpassed its PT. The analysts viewed, "We estimate the company's DNKN business is already more than 50% of management's LT target in just over a year. Green coffee prices (14% of COGS) are up ~20% from their recent bottoms and grain costs (10% of COGS) are up 20-50%. Management plans on spending an incremental $40M on marketing next year, which could also limit earnings upside." The brokerage increased its new FY17 EPS estimate to $6.51 from $6.41and compares to management's guidance range of $6.42-$6.57. The analysts believe that it reflected lower outstanding shares and a lower tax rate. Moreover, the analysts introduced their FY18 EPS estimate of $6.98, which implies ~7% y/y growth. As far as Valuation/Risks, the analysts viewed that on an EV/EBITDA basis, SJM currently trades at 12.7x its NTM EBITDA estimates, or a ~11% discount to its large-cap packaged food peer group average of 14.2x. The brokerage pointed out risks including Execution of missteps on the Big Heart Pet Brands acquisition, and SJM is more exposed to changes in raw material costs than its packaged food peers. On Friday, the stock traded 1.24 percent higher.