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B&G Foods, Inc. (BGS): Is This Company a Buy After Its Latest Move?

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Recently, B&G Foods, Inc. (NYSE:BGS) announced that it has agreed to spend around $195 million in cash to add Pirate Brands to the company’s brand portfolio. Since the beginning of the year, B&G has gained nearly 11%, lagging the S&P 500’s return of more than 14%. Is B&G Foods a good investment after the recent deal? Let’s take a closer look.

B&G’s consistent growth in operating performance

B&G Foods, Inc. (NYSE:BGS), incorporated in 1996, is the manufacturer and distributor of high quality, self-stable food and household products in North America, owning some main brands including Ortega, Cream of Wheat, Maple Grove Farms of Vermont, and Las Palmas. B&G Foods has been growing partly via acquisitions. Since 1996, B&G Foods has bought more than 25 brands and integrated them into the company.

In the past five years, B&G Foods, Inc. (NYSE:BGS) has managed to consistently grow its top and bottom lines. Revenue increased from $467 million in 2008 to nearly $634 million in 2012, while net income rose from $9.7 million to $59.3 million during the same period. The company’s adjusted EBITDA has followed the same trend, climbing from $89.4 million to $169 million since 2008.

Pirate Brands’ acquisition

On June 10, B&G Foods, Inc. (NYSE:BGS) announced its agreement to take Pirate Brands, including the iconic Pirate’s Booty, into its own portfolio. The target was considered the leading company in the all-natural snack foods segment. The company expects that after Pirate Brands is fully integrated into B&G Foods, it would produce around $80-$90 million in revenue and $18-$20 million in the adjusted EBITDA.

David Wenner, B&G Foods, Inc. (NYSE:BGS)’ CEO, was excited about the deal, he said: “We look forward to continuing to bring consumers great-tasting, all natural snack foods they have come to love and expect from Pirate Brands. Consistent with our acquisition strategy, we expect the acquisition to be immediately accretive to our earnings per share and free cash flow.”

B&G Foods, Inc. (NYSE:BGS)According to Mike Repole, Pirate Brands’ chairman, the company has managed to grow its sales more than three times. Because of the growth rate, B&G Foods, Inc. (NYSE:BGS) commented that it has acquired Pirate Brands at a higher valuation than in other typical deals. However, I do not think it placed Pirate Booty’s at a high valuation, as the forward EBITDA multiple is only 10.8. B&G Foods has a higher forward EBITDA multiple of 11.7.

EV/EBITDA, or EBITDA multiple takes into account the relationship between cash, debt position, market value, and the cash flow position of the company. The lower the ratio, the cheaper the stock.

A relatively high valuation but juiciest dividend yield

Compared to its much bigger peers General Mills, Inc. (NYSE:GIS) and The J.M. Smucker Company (NYSE:SJM), B&G Foods, Inc. (NYSE:BGS) seems to have the highest valuation among the three companies. General Mills, at $48.60 per share, is worth more than $31.3 billion. The market values General Mills at around 11.1 times EV/EBITDA. Recently, General Mills raised its EPS guidance. For the full year 2013, General Mills expects to generate around $2.68 to $2.69 earnings per share, higher than the previous guidance of $2.66 to $2.68.

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