B&G Foods, Inc.

BGS Details

Based in Parsippany, New Jersey, B&G Foods, Inc. (NYSE: BGS), along with its subsidiaries, is engaged in the manufacturing, selling and distributing high-quality, branded shelf-stable and frozen foods across the United States, Canada, and Puerto Rico.

FY20 Results Performance

The company has delivered a healthy performance in FY20 with net sales increasing by 18.5% YoY to $1.968 billion wherein net sales from base business grew by 14.7 % YoY. In line with robust growth in sales, the company witnessed a 19.4% YoY rise in its adjusted EBITDA to $361.2 million. Resultantly, the company posted a strong of growth of 72.8% YoY in its net income to $132.0 million for the full year. The performance of the company reflects favourable impact of continued strong demand for the company’s products during the COVID-19 pandemic, an extra reporting week and the impact of the Crisco acquisition.

Financial Snapshot

Source: Company Reports

Q1FY21 Results Performance (For the Quarter Ended April 3, 2021)

The company has recorded 12.4% YoY growth in net sales to $505.1 million owing to the benefits of the Crisco acquisition and sustained strong net sales from the base business. Crisco has contributed $58.1 million to the net sales during the period. Adjusted EBITDA for the quarter increased by 15.2% to $92.9 million on account of increased net sales. However, net income for the period was reduced by 4.3% to $26.9 million as its Q1FY20’s net income was benefited from a discrete tax benefit of $2.3 million related to the U.S. CARES Act.

Declared Dividend

The board of directors, on May 18, 2021, declared a regular quarterly cash dividend of $0.475 per share of common stock with the payable date of July 30, 2021.

Outlook

BGS continues to experience strong consumer demand for the products and expects it to remain at an elevated level throughout the remainder of FY21. Despite strong demand, the company’s base business net sales in Q2FY21 is expected to come around the same as it was in FY19 due to the extraordinary demand and pantry loading at the height of the pandemic in Q2FY20. Meanwhile, it reaffirmed the net sales guidance range of $2.05 billion to $2.10 billion for FY21. This will be driven by the benefit of twelve months of ownership of the Crisco brand.

Key Risks

The company’s performance is exposed to various risks which include the impact of hardening of raw materials, packaging, ingredients, and distribution costs. Further, the adverse impact of higher competition, changes in consumer preferences, and any slowdown in the demand for the products, among others, also pose great challenges before the company.

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

Technical Overview:

Weekly Chart –

Source: REFINITIV

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/

Experiencing low volatility, the stock has been trading in the range provided by the 50% retracement level of $31.82 on the upside and a 61.8% retracement level of $28.04 on the downside. The technical indicator RSI with a reading around 48 suggests gaining of bullish momentum for the stock.

Going forward, the stock may have resistance around $31.82 whereas support could be around $28.04. 

Stock Recommendation

The stock has made a 52-week low and high of $20.63 and $47.84, respectively. The stock declined by 3.80% in 9 months.

We have applied EV/Sales multiple based relative valuation (on an illustrative basis) and the target price so arrived reflects the potential rise of low double-digit (in % terms). We have applied a slight discount to EV/Sales Multiple (NTM) (Peer Average) considering the elevated debt profile, cost inflation for various inputs, and the risks associated with the Covid-19 pandemic. For the purposes of relative valuation, we have taken peers like Campbell Soup Co (CPB.N), J M Smucker Co (SJM.N), to name a few.

Considering the robust demand environment, solid revenue growth guidance for FY21, decent business performance in Q1FY21, and a healthy liquidity position, we give a “Buy” recommendation on the stock at the current market price of $29.34 per share, up by 0.1% on 24^th May 2021.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: 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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