Option Trade 
J M Smucker Co (NYSE:SJM) Calls 
Wednesday, 8th June, 2016

** OPTION TRADE: Buy the SJM Oct 2016 135.000 call at approximately $4.30. Place a pre-determined sell at $8.00.

Note: No protective stop losses added -- but if you wish to do so make it $1.75.

by Ian Harvey

June 08, 2016

J M Smucker Co (NYSE: SJM), a manufacturer and marketer of consumer food and drink products and pet food and pet bites in North America, is scheduled to release its fiscal fourth-quarter results before the market opens tomorrow, June 9, with analysts forecasting earnings of $1.19 per share, and revenue of $1.75 billion for the quarter.

SJM has a strung together three consecutive better-than-expected quarterly reports, and if it can extend that streak with its fiscal Q4 results; the stock should build on its recent gains.

Despite several bouts of market turbulence in the last year, J.M. Smucker Company's stock has bucked the trend and continued higher. The company has been bolstered by steadily rising sales and profit, and the stock has outperformed the broader stock market as measured by the S&P 500.

The J. M. Smucker Company (SJM) has been steadily rising over the last year, and shares have gained 6.7% during the current year.

Shares of J M Smucker Co will open at $132.53 this morning. The firm’s 50-day moving average price is $128.76 and its 200-day moving average price is $126.26. The company has a market capitalization of $15.86 billion and a PE ratio of 38.06. J M Smucker Co has a 12-month low of $104.30 and a 12-month high of $133.21.

Positive Input

Smucker's breaks its business down into four segments: coffee, consumer foods, pet foods, and international. In the latest quarter, consumer foods and international were down 5% and 4% from last year, respectively. This was offset by a 1% increase in coffee as well as the purchase of Big Heart Pet Brands last March.

• Consumer foods were impacted by the sale of the Smucker's milk business and declines in Jif peanut butter and Pillsbury baking products, but it saw gains with the launch of Smucker's Uncrustables frozen sandwiches. Even though the foods division has seen stagnating sales as of late, profit increased by 6% last quarter, mostly from proceeds from the milk business sale.

• The international segment, the company's smallest, saw declines in sales because of unfavorable foreign currency exchange rates. Despite that, profits increased 4% because of lower expenses.

• Coffee was the shining star, with Dunkin' Donuts K-Cup's, Folgers, and other coffee brand sales increasing offsetting declines in Folgers K-Cup sales. Smucker's licensing agreement with Dunkin' Brands Group to sell consumer coffee is a standout for the business and has been a growth leader, helping increase profit for the segment by 17% from last year. Coffee is now Smucker's largest contributor to total sales and profits.

• Despite several bouts of market turbulence in the last year, J.M. Smucker Company's (NYSE:SJM) stock has bucked the trend and continued higher. The company has been bolstered by steadily rising sales and profit, and the stock has outperformed the broader stock market as measured by the S&P 500.

• Last spring, Smucker decided to make a foray into pet food, purchasing Big Heart Pet Brands last March for $5.8 billion in stock and cash. The deal has contributed to both sales and profit. During the last report, the pet food division just trailed coffee as the second biggest contributor to Smucker's top line, although profit margins were only at 17% compared with over 30% for the coffee segment.

• While coffee and pet food may not be the first things to come to mind at the mention of Smucker (I think of peanut butter and jelly), it has been a testament to the company's ability to adapt and grow while its core food segment has been stagnant.

KeyBanc assumed coverage on J M Smucker in a report on Wednesday, May 25th. They set a “sector weight” rating on the stock. One analyst has rated the stock with a sell rating, seven have assigned a hold rating and five have issued a buy rating to the company’s stock. J M Smucker currently has a consensus rating of “Hold” and a consensus target price of $137.30.

Also, several other equities research analysts have recently commented on the company.

• Credit Suisse increased their price objective on J M Smucker from $138.00 to $142.00 and gave the company an “outperform” rating in a research note on Thursday, February 18th.

• Morgan Stanley lifted their price objective on J M Smucker from $128.00 to $135.00 and gave the stock an “equal weight” rating in a research report on Friday, June 3rd.

• Zacks Investment Research raised shares of J M Smucker from a “hold” rating to a “buy” rating and set a $143.00 target price for the company in a research note on Tuesday, April 26th.

• Finally, Susquehanna restated a “neutral” rating and issued a $132.00 target price on shares of J M Smucker in a report on Tuesday, February 23rd.

One analyst has rated the stock with a sell rating, seven have assigned a hold rating and five have issued a buy rating to the company’s stock. J M Smucker currently has a consensus rating of “Hold” and a consensus target price of $137.30.

Harvey’s Options Volatility Indicator

Conclusion

There have been upbeat reports from other stocks in the sector recently, with both ConAgra (CAG) and Mondelez International (MDLZ) posting solid results in their last quarterly reports. The entire sector has been strong in 2016, and there should be more strength ahead. With the SJM stock’s strong gains so far this year, analysts forecast earnings growth of 7.4% this year, and 10.6% next year. Given the stock’s forward growth estimates, there should be additional upside potential. Expect a decent report, and the stock to trend higher.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

** OPTION TRADE: Buy the SJM Oct 2016 135.000 call at approximately $4.30. Place a pre-determined sell at $8.00.

Note: No protective stop losses added -- but if you wish to do so make it $1.75.

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.



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