The last quarter was a fantastic quarter for food maker and peanut butter leader J.M. Smucker (SJM). However, you wouldn’t know it from the investor response. Despite turning in beats for both earnings and revenue, Smuckers ultimately lost 3.5% in premarket trading on Tuesday.
Those losses, however, turned completely around going into Tuesday morning’s trading session. The stock is currently up 4.9%.
I’m bullish on Smuckers overall. The recent troubles the company has seen should be largely temporary and have minimal impact on the company overall. People will still eat Jif, and all the jams and jellies that Smuckers offers to perk up the peanut butter won’t hurt either.
J.M. Smuckers would have had a great year if not for the last few weeks. Though the company lost ground last June and again into last September, a stunning comeback fired up that put some new life in the company. Then the Jif recalls hit like a bus, and now, Smuckers is trading down around where it was last November. It’s not quite at new lows, but it’s well off its highs.
Smuckers’ earnings report proved a revitalizing agent. The company posted $2.23 per share in earnings, handily beating the Zacks consensus of $1.88. Likewise, Smuckers also beat revenue estimates, bringing in $2.03 billion. That was ahead of the Zacks consensus by 2.68%.
Wall Street’s Take
Turning to Wall Street, J.M. Smuckers has a Hold consensus rating. That’s based on three Holds and one Sell assigned in the past three months. The average J.M. Smuckers price target of $134 implies 3.7% upside potential.
Analyst price targets range from a low of $123 per share to a high of $140 per share.
Investor Sentiment is Turning Against Smuckers
It would be one thing to say the recent recall troubles had Smuckers on the ropes. However, there are signs that investor sentiment was already turning against Smuckers even before then.
Smuckers currently has a Smart Score of 4 out of 10 on TipRanks, which puts it at the lowest level of “neutral.” That means it’s most likely to be in line with the rest of the market, but no one’s ruling out lagging.
Hedge funds, for example, started to turn against Smuckers in March. The latest word from the TipRanks 13-F Tracker reveals that, for the first time since 2020, hedge funds reduced their involvement with Smuckers. Hedge funds dropped 170,700 shares last quarter.
Insider trading isn’t much better, being heavily Sell-weighted for the last year. The last time any transactions were recorded was back in February, and it was an even split between Buy transactions and Sell transactions at two each.
Going back through the full year, meanwhile, ramps the selling up considerably. SJM insiders engaged in 16 Sell transactions and three Buy transactions.
Retail investors who hold portfolios on TipRanks have a bit of a mixed picture as well. While the number of TipRanks portfolios that held Smuckers stock was down 0.7% in the last seven days, this number was up 2% in the last 30 days.
Finally, there’s the matter of J.M.Smuckers dividend history. It behaves just like what an income investor would want to see. While yes, it did remain stable throughout the pandemic, it wasn’t halted, either.
That puts Smuckers ahead of many of its contemporaries. Additionally, Smuckers raised its dividend in August 2021, suggesting that another such hike may be imminent.
Betting on Peanut Butter is Likely a Good Policy
Yes, Smuckers took a hit from the Jif peanut butter recalls staged just weeks ago, and yes, that hit is likely to weigh on earnings results going into the next quarter. So, it might not be a bad idea to let the results of this issue process through the system a bit before buying in.
However, here’s the biggest issue for Smuckers: it’s still one of the leading producers of peanut butter around. If ever there was a food designed to get people fed for the least amount of money, then a peanut butter and jelly sandwich is high on that list.
With a recession increasingly likely and inflation spiraling out of control, a ready source of cheap food is a good plan to beat a recession. Peanut butter will still be a valuable part of pantries and kitchen shelves everywhere. Investing in such a product, therefore, should prove every bit as good.
Smuckers, of course, offers peanut butter through not only the Jif line—a favorite of many since earliest childhood—but also a line of jams and jellies. Jams and jellies go with peanut butter about as well as you’d expect peanut butter to go with jelly.
Sure, Jif might take a bit of a hit for a while. Restocking the shelves in the middle of this supply-chain crunch will be tough enough for anyone, but getting Jif back on the shelves as fast as possible has to be a priority for Smuckers. It needs that product line in and swinging to produce the best results.
Thus, a reasonable response to Smuckers right now might be to hold off just a bit until the recall makes its way through earnings and out the other side. After that, Smuckers is likely to reassert its performance and retake its place as one of the biggest names in cheap, convenient, and filling food.
Concluding Views
If there ever was a plan to resist recession, “cheap, convenient and filling food” has to be one of the best around. Smuckers’ hit is likely to be temporary, as we saw with trading on Tuesday. Sure, it was down in the premarket, but it snapped back up in the day’s trading session.
It’s hard to go very far wrong with peanut butter. While investor sentiment seems to be turning against Smuckers a bit, such a turn may prove temporary. It’s odd that hedge funds started to pull back before the recall effort happened. Odder still, insiders haven’t bought or sold much stock in the last two months.
In the end, we’re still talking about a company that’s long on selling needs going into a likely recession. We’re also talking about a company that’s trading just above its lowest price targets with a fairly narrow target range and a reliable dividend. Smuckers isn’t likely to be a huge success story, but it’s likely to be a safe harbor investment in these wildly tumultuous times.
