B & G Foods Inc

BGS Details

B & G Foods Inc (NYSE: BGS) manufactures, sells, and distributes a diverse portfolio of branded, high quality, shelf-stable and frozen food, and household products across the United States, Canada and Puerto Rico. The company has a market capitalization of ~$1.8 billion as on May 4, 2021.

Results Performance (Year Ended 2^nd January 2021)

Net sales of the company for the full-year period increased by 18.5% to $1.968 billion whereas adjusted EBITDA increased by 19.4% to $361.2 million YoY. Driven by the growth in sales and adjusted EBITDA, the company reported 72.8% growth in net income for full year which stood to $132.0 million, as compared to $76.4 million in the previous year. Diluted earnings per common share stood at $2.04, as compared to $1.17 in the previous year. Cash and cash equivalents at the end of the period stood at $52.1 million, as compared to $11.3 million in the previous year.

Key Data (Source: Company Reports)

Outlook:

The company benefits from a pandemic like situation wherein demand for essential products like food products see a sharp increase. The fact that the pandemic-like situation continues to prevail and to cater to rising demand for food products, the company has started working closely with its supply chain partners to ensure uninterrupted supply of the product and services. Fortunately, the company’s customers also have not been materially impacted by the pandemic. The company has successfully executed the acquisitions strategy which has yielded positive results for the company. BGS recently acquired the iconic Crisco brand of oils, which is the number one brand of shortening, the number one brand of vegetable oil, and also holds a leadership position in other cooking oils and cooking sprays. Its acquisition strategy targets well-established brands with defensible market positions and strong cash flow at reasonable purchase price multiples.

Key Risks:

The year 2021 is likely to be more challenging year from the perspective of inflation across a number of input costs including certain agricultural products, packaging and freight. Besides, the company continues to face supply chain constraints for the certain products.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Technical Overview:

Weekly Chart –

Source: Refinitiv (Thomson Reuters)

Note: Purple colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

After making a high of $47.48, the stock has corrected beyond 61.8% retracement level of $31.03, and for the past couple of weeks, it has been hovering around the same. For the ongoing week, the stock has given a flattish close of around $29.33. The technical indicator RSI with a reading around 48, suggests gaining bullish momentum for the stock.

Going forward, the stock may have resistance around the 50% retracement level of $37.43 whereas support could be around the previous low of $27.00.

Stock Recommendation:

The company’s EBITDA margin and net margin for FY20 stood at 18.8% and 6.7%, better than the industry median of 11.3% and 4.0%, respectively implying efficiency in managing operating and non-operating costs. The stock rose by ~48.7% in 1 year and by ~2.08% in 6 months. It has made a 52-week low and high of $19.11 and $47.84, respectively and is trading towards the 52-week lower levels.

We have valued the stock using EV/Sales multiple-based illustrative relative valuation and have arrived at a target price which reflects a rise of low-double digit (in % terms). We have assigned a slight discount to EV/Sales Multiple (NTM) (Peer average) considering increase in debt and higher cash cycle (days).

Considering the aforesaid facts, we give a “Buy” recommendation on the stock at the current market price of US$29.33 per share, up by 1.21% on May 4, 2021.

BGS Daily Technical Chart (Source: Refinitiv (Thomson Reuters)) 

Note: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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