J.M. Smucker Co: $SJM Cash Flow Valuation Update

Current Price: ~ $75/share
Projected Yield: ~ 2.57%



Smucker manufactures and distributes coffee, fruit spreads, peanut butter, shortening and oils, baking mixes and frostings, and natural products under its portfolio of category-leading brands in North America. Notable brands under the Smucker umbrella include Smucker's, Folgers, Dunkin' Donuts brand coffee, Jif, Crisco, Pillsbury, and Hungry Jack. Of these brands, seven are product category leaders in the United States, and eight brands hold a number-one spot in Canada.          

Estimated WACC for the firm today is 5.51% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:

Year	FCF $Millions
2003	116
2004	26
2005	107
2006	135
2007	216
2008	115
2009	336
2010	576
2011	211
2012	457

Average Annual Growth FCF: ~ 66%

CAGR FCF: ~ 16%

Consensus Forecast Industry 5-Year Growth: ~ 13% per year

Consensus Forecast Company 5-Year Growth: ~ 8% per year

Internal Growth Rate: ~ 3%

Sustainable Growth Rate: ~ 5%

Scenario 1
Average FCF (2012, 2011, 2010) is $415 million

• Start at $415 million FCF
• Assume a 5-year growth rate in FCF of 8% per year, then no growth or 0% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year	FCF $Millions
0	415
1	448
2	484
3	523
4	565
5	610
Terminal Value	11961

The firm's future cash flows, discounted at a WACC of 5.51%, give a present value for the entire firm (Debt + Equity) of $11376 million. If the firm's fair value of debt is estimated at $2444 million, then the fair value of the firm's equity could be $8932 million.  $8932 million / 110 million outstanding shares is approximately $81 per share and a 20% margin of safety is $65/share.

Scenario 2

All else being equal,

• Discount the firm's future FCFs at 6.51%:

Discounted Cash Flow Valuation

Year	FCF $Millions
0	415
1	448
2	484
3	523
4	565
5	610
Terminal Value	10116

• Present Value of the entire firm (Debt + Equity): $9544 million
• Value of Equity: $7100 million or $65/share
• 20% margin of safety is $52/share

Sources

Morningstar.com

Yahoo! Finance

Smuckers.com

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.