Deutsche Bank Upgrades J.M. Smucker (SJM) to Buy on Big Heart Deal

Deutsche Bank upgraded J.M. Smucker (NYSE: SJM) from Hold to Buy with a price target of $125.00 (from $101.00). The change follows its deal to acquire Big Heart.

Analyst Eric Katzman said, "We have been cautious on Smucker the past year but now see a more positive outlook with the pet food acquisition. Our concern remains around core fundamentals but we nevertheless see pet food (30% of sales) as portfolio enhancing. Net debt jumps to 4x EBITDA, yet we see FCF (6% yield) and most valuation metrics as compelling."

"We see a number of reasons to be more optimistic including: (1) potential for the new Pet Food segment to be additive to Smucker’s overall sales growth rate, (2) history suggests pet food & snacks is a rational category with solid and predictable profitability, (3) Smucker’s track record in M&A / value creation is very strong over the past 10+ years, (4) Big Heart gross margins could improve as lower cost ingredients help the P&L over the next 6-12 months, (5) allows for diversification away from the recently more challenged U.S. Coffee business, (6) retention of Big Heart’s CEO West and his track record as a strong leader, and (7) compelling valuation particularly when focused on Cash EPS, FCF and FCF efficiency," added the analyst.

For an analyst ratings summary and ratings history on J.M. Smucker click here. For more ratings news on J.M. Smucker click here.

Shares of J.M. Smucker closed at $105.88 yesterday.

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