Will J.M. Smucker Continue Its Sweet Run After Earnings?

J.M. Smucker (NYSE:SJM) will release earnings for its fiscal year 2021 first quarter before the bell on August 25. At this time, analysts are projecting the company to post earnings of $1.69 per share. The whisper number suggests Smucker’s may do better than that with earnings per share (EPS) of $1.79 on revenue of $1.81 billion.

That would support the bullish trend for Smucker’s that started after SJM stock dropped nearly 10% after its last earnings report. The company closed out fiscal 2020 beating top and bottom-line estimates. But that wasn’t enough for investors.  The stock fell nearly 10%, but has made up that gain. In fact, SJM stock is now sitting at a gain of approximately 10% in 2020.

Will Smucker’s continue to get a virus-induced bounce?

It’s hard to understate the significance that pantry stocking had in Smucker’s previous quarter. Earnings were up approximately 25% year-over-year, and revenue also posted a strong YoY gain of approximately 10%. This was the very definition of a winning coronavirus stock.

One of the most encouraging metrics for the company was better-than-expected growth in its e-commerce business (shop.smucker.com). This is significance because it shows that consumers are looking for the company’s portfolio of iconic brands in other avenues aside from the grocery store.

However, as kids go back to college (in some areas) and things at the grocery store at least appear to look more normal, there is less panic buying going on. At the same time, it’s not yet clear how much revenue Smuckers will receive from its “away from home” business. This means the institutions like offices, hotels, and schools that were closed during the pandemic. And investors will be looking to see how the company is dealing with supply chain disruptions and increased food prices.

Does this mean people will stop buying the jams, jellies, coffee, and pet food that make up the Smucker’s portfolio? No, but it does suggest that any revenue gains will begin to even out.

The bottom line is that investors are not planning on seeing the company’s revenue continue to outperform. In fact, if the $1.8 billion revenue number is correct it would be in line with the company’s revenue on a YoY basis. And at this time last year, SJM stock was sitting almost exactly where it is today. And that preceded a fourth-quarter where the stock essentially went nowhere.

Solid earnings may support the technicals

For those that prefer technical analysis, SJM’s stock chart is showing its 50-day simple moving average (SMA) converging with its 200-day (SMA). Back in June, the 50-day SMA was significantly above the 200-day which seemed to be a sell signal. As that gap has narrowed, the stock has gone back up.

A positive earnings report will support the two averages continuing to move in concert, which would seem to be a positive catalyst for the stock. However, the stock is trading at low volume right now. Any significant move may not happen until the institutional investors jump back in.

The stock is dropping since going ex-dividend

In July, Smucker’s announced it was increasing its dividend. With the ex-dividend date set at August 13, the stock price increased as value investors wanted to ensure they were investors of record by that date.

Now it appears that investors were more interested in capturing that dividend but may not believe in the overall growth story for Smuckers. However, the company’s dividend is well covered in terms of both profits and cash flow, so there’s no real reason for value investors to walk away from the stock.

SJM stock has been downgraded recently by analysts and the consensus price target suggests the stock is near a top.

What’s the play on Smucker’s stock?

There’s no clear conviction about Smucker’s stock from either a fundamental or technical basis. It’s encouraging to see the stock find support around $111 per share last week. That suggests that the stock may get a good bounce once they post earnings.

However, even a better than expected report will still show investors that both earnings and revenue are coming down from pandemic highs. With that in mind, growth investors will want to pay close attention to management’s forward guidance. Barring new catalysts, this stock could be settling back into a tight range.

Value investors, on the other hand, have little reason to stay away from Smucker’s. The company pays out a solid dividend that is well supported. And Smuckers has now increased its dividend for the last 18 years.