Smucker Mighty Attractive Says Deutsche Bank

Deutsche Bank has published a research report on the J. M. Smucker Company SJM and believes that the company's current valuation is very attractive. In the report, Deutsche Bank writes "The weakness in coffee volume (detailed below) is nevertheless a concern. But in the context of a low valuation, we believe Smucker shares remain attractive. As we have noted in the past, Smucker's valuation is particularly intriguing when $0.40 a share of goodwill amortization is added back to operating EPS. Valuation on C2011 equals 11.6x adjusted P/E, 9.0x EBIT and 7.4x EBITDA. Another way of thinking about this is to consider the company's strong FCF. Despite a cash heavy restructuring program underway for the next few years, Smucker FCF (yield = 6%, 80% efficiency) is strong. Thus it is up to the Board to use such cash to reward shareholders either in the form of accretive acquisitions, higher dividends or share buybacks. While M&A is difficult to predict, management is clearly ready for additional acquisitions and has a solid track record. If the company returns close to a 40% payout ratio, even on operating EPS before goodwill add-back, this points to a 15%+ increase in the dividend. Lastly, we note the company is now past the 2-year RMT restriction on buybacks and we expect some activity in coming quarters to lower the share count." Deutsche Bank maintains its Buy rating and $68 price target. The J. M. Smucker Company closed yesterday at $62.93.