JM Smucker (SJM) — known for its jam, jelly and peanut butter — posted fiscal Q2 EPS of $2.43 on just over $2 billion of sales, notes John Buckingham, money manger and editor of The Prudent Speculator.

The bottom-line print was 18% better than the consensus analyst estimate of $2.05, and slightly higher than the same quarter a year ago.Strong performance for Uncrustables contributed to 6% comparable sales growth in the U.S. foods segment, which was offset by elevated costs in the food maker’s largest segment (Pet Foods).

To ensure against a lack of raw materials given supply constraints, management has invested in a carrying a bit more inventory than usual. These actions are expected to reduce operating cash flow by roughly $80 million, resulting in a $700 million free cash flow estimate.

The action didn’t stop management from raising its latest sales and EPS guidance for the full fiscal year by $160 million and $0.10 from each respective midpoint, given its view that a favorable sales mix combined with price increases and cost savings initiatives will benefit results in future quarters.

Competition remains stiff for space in the inner grocery store aisles as well as relevance given consumer preference trends toward fresh and healthy foods, but Smucker still offers modest growth potential with EPS projected to rise from $8.59 in fiscal ‘22 to $9.01 in fiscal ‘23 and $9.48 on fiscal ‘24, to go along with a robust dividend yield of 3.0%.

Of course, every stock is fighting for its spot in our portfolios and should SJM hold up significantly better than other stocks if the COVID-19 variant equity market volatility worsens, we could see the shares used as a source of funds for new ideas.

For the time being, however, we like that the valuation is on the lower end relative to its peers and that our exposure to the name contributes stability to our portfolios. Our target price for SJM now stands at $152 a share.

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