The J.M. Smucker Company (SJM): ‘Forever’ Stock Is Up 130% Since 2008

Take a look at the stock’s performance since 2008:

Smucker generates plenty of cash flow. The price-to-free cash flow ratio is 23.1, which shows a strong ability to generate. Its target dividend payout rate of 40% of earnings is its big way of rewarding shareholders. The 2% dividend yield has maintained an 8.5% growth rate, increasing each year since 2001. Revenue has increased more than 14% from 2011 to $5.5 billion in 2012 and is projected to approach $6 billion this year.

The company’s earnings have been quite impressive. During the past four quarters, Smucker has reported three positive earnings surprises and one in-line report. Earnings per share dropped 1.6% between 2011 and last year to $4.73 due to acquisition costs, but this year appears to be heading in the right direction with a projected $5.24 per share.

Smucker also shines compared with its peers in the packaged foods industry. Not only is the company’s trailing 12-month price-to-earnings ratio of 20.9 lower than the industry average of 23.45, but its revenue growth of 10.4% is much better than the 6.1% industry average. Smucker’s gross margins are 32.8% versus the industry’s 30.4%, and its net margins are more than double the industry average (9.8% versus 4.3%).

Smucker is in great financial health, with a debt-to-capital ratio of just under 0.3. Despite its aggressive acquisition strategy, its leverage remains below most of its industry peers. It typically uses debt to finance its acquisitions, but its strong cash flows allow it to quickly pay down this debt.

Risks to consider: Commodity prices remain extremely volatile, posing a threat to future expenses. Smucker has had some challenges integrating acquisitions into its core business model, which could also weigh on future growth.

Action to take –> Smucker closed at $99 a share April 10 and remains a good buy at up to $102. My 12- to 18-month price target is $120, representing a 20% rise from its current price. With a current dividend yield of 2%, this stock provides a great combination of growth and income.

This article was originally written by Jay Peroni, and posted on StreetAuthority.