The J. M. Smucker Company (SJM)

Total return at 5 years: 13.5%/year = 10.3% appreciation + 3.2% dividend. The target price ($196) is ex-dividend; the $23 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $304 · Multiples $178) exceeds the market price ($120).

Today — fairly valued: at $120 trades ~32.5% below its value discounted to today (~$178); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — Infravalorado: the target price ($196) plus dividends yield above the required average return (10%) — the business compounds.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$113.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($120) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-9.9%/year) than we project (5.0%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$0.8 bn of owner earnings in year 5 (vs ~$1.8 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on Utilidad neta ajustada (P/E). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

The year-0 is the trailing twelve months ended July 31, 2026, built by levels from the fiscal first quarter 2027 release (8-K of August 26, 2026) on top of fiscal year 2026, which closes in April: net sales of $9,156.9 million, adjusted operating income of $1,848.7 million, and adjusted earnings per share of $10.49. That year-0 is normalized for two items the company itself quantifies and that do not describe the business's underlying trajectory. The first are the Sweet Baked Snacks segment's (Hostess, acquired in 2023) non-cash impairments recognized in the fiscal third quarter 2026: $507.5 million of goodwill —the segment's entire balance, which was zeroed out— and $454.2 million on the brand; that is why the valuation runs on the adjusted earnings the company reconciles rather than on the reported result, which shows net income of just $229.5 million for the trailing twelve months. The second are $115.0 million of tariff refunds collected in the fiscal first quarter 2027 and recorded within gross profit, equivalent to $0.84 per share: these are subtracted from year-0, so normalized adjusted earnings stand at $9.65 per share and normalized adjusted operating income at $1,733.7 million, an 18.93% margin. Year 1 anchors on the raised guidance from the same release: net sales declining 1.0% to 2.0% (improved from the 3.0% to 4.0% decline guided in June) and adjusted earnings per share of $10.50 to $11.00 (raised from $9.75 to $10.25), with an adjusted gross margin of 38.75%, SG&A rising 8.0%, interest expense of $335.0 million, an adjusted tax rate of 24.2%, and 107.1 million diluted shares. The company states that range includes a net benefit of $0.60 per share from the tariff refunds, so normalized guidance is $10.15. Over the rolling window, year 1 combines the three remaining quarters of the guided fiscal year with the following first quarter projected on the normalized base: sales of $8,948.4 million (a 2.3% decline) and adjusted earnings of $10.05 per share, 4.2% above the normalized year-0. From year 2, sales stabilize and resume moderate growth toward 3.0% by year 5, at the low end of the staples band, reflecting that the moat trend is eroding: the Sweet Baked Snacks segment keeps declining (sales down 7% and segment profit down 13% in the quarter) even after the accounting cleanup, and private label keeps gaining share. The shape of the path is valley-and-recovery, not monotonic deceleration, and is declared as such: the year-1 decline is the normalization of fiscal 2026's aggressive coffee price increase, not a demand decline. The base case's exit multiple, 16.5 times, positions near the floor of the staples band (16 to 22 times) because the normalized return on invested capital (9.2% on the balance sheet's real capital) falls short of the 10% bar and the moat trend is eroding. The year-0 operating cash flow margin (20.9%) is above its recurring level because the trailing twelve months released working capital through inventory reduction and collected the refunds; fiscal-year guidance sets free cash flow at $1,100 million with capex of $325.0 million, which is the level the path returns to from year 1. The change in working capital in the discounted cash flow is declared as zero for the same reason: the trailing twelve months released $193.9 million that is not recurring. Cash remains structurally low and flat ($43.2 million at quarter-end): the surplus is neither accumulated nor directed to buybacks (just $5.7 million in the quarter, compensation-related treasury shares only) but to debt repayment, which fell $230.8 million net in the quarter — hence the surplus is declared reinvested and there is no share count path.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $196 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $120, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $196 in 5 years plus $23 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $178. Against the current market price ($120), the margin of safety is 32.5% (trades below the maximum → there is margin) and the total return at that price would be 13.5% annually.

• P/E on adjusted earnings. The current price implies a 13× multiple on adjusted earnings, below the center of the staples band.
• GAAP vs. adjusted distortion. The negative GAAP result masks positive and growing adjusted earnings, a likely source of the price gap.
• Multiple near the floor of the band. 16.5× reflects soft quality (ROIC below the bar, eroding moat), not an unqualified exceptional opportunity.
• Dividend yield. The current dividend relative to the market price is a material component of the expected total return.

• ✕ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (123%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Normalized ROIC vs. the bar. ~8.4% on real invested capital, just below the 10% bar once non-cash impairments are excluded.
• Cash generation. FY2026 OCF of US$1,473.6 million, up versus the prior three fiscal years.
• Quality of GAAP earnings. Two consecutive years of goodwill impairments distort reported earnings relative to real cash generated.
• Reinvestment runway. Capex below D&A; the company is not in capacity-expansion mode beyond one-off projects.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

In fiscal 2026, consolidated sales growth (+4% reported) came from 9 percentage points of net price and -4 points of volume and mix: the company passed commodity inflation (mainly green coffee) through to price while volume contracted. Fiscal first quarter 2027 shows the same pattern, muted: +5% sales, 4 points of price and 1 of volume, with Coffee contributing 13% growth (10 points of price) and Sweet Baked Snacks down 7% with volume down 8 points. Full-year guidance partially reverses this dynamic: lower net price and flat volume are expected, hence the guided sales decline despite the margin recovery.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (31-jul-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• FY2026 sales growth. +4% reported, almost entirely from price (+9pts) with volume −4pts.
• FY2027 sales guidance. Guided decline of −3.0% to −4.0% on coffee price normalization.
• Away From Home. The smallest segment grew 15% in sales and 21% in earnings in the latest quarter.
• Sweet Baked Snacks. Sales −17.6% for the year with volume down 8 percentage points.

• Category-leading brands. Folgers, Jif, Smucker's, and Milk-Bone are leaders or co-leaders in their categories, with long-standing recognition.
• Customer concentration. Walmart accounts for 34% of net sales with no long-term supply contract.
• Commodity exposure. Green coffee, an exclusively imported input, is highly volatile in price.
• Segment diversification. Five segments with distinct dynamics cushion Sweet Baked Snacks' weakness.
• Private-label pressure. Private label gained dollar market share during the year.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✕Leverage (net debt / EBITDA)Net debt / EBITDA 3.2x
• !Interest coverage (EBIT / interest)4.2x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 123% of ROIC
• ✕Value creation (ROIC − 10% bar)-1pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 0.6x — no over-investment
• –Float / working capitalNeutral WC
• ✓Dilution (SBC % of revenue + shares)SBC 0.3% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Leverage. ~US$7,000 million of total debt, high for the size of the business.
• Deleveraging trajectory. Net repayment of US$720.0 million in FY2026, an active reduction trend.
• Available cash. Structurally low cash (~US$58.6 million), with no wide liquidity cushion.
• Interest coverage. Adjusted operating income of US$1,678.3 million comfortably covers interest expense of ~US$381 million.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Family continuity. CEO from the founding family with 28 years at the company, stated long-term alignment.
• Internal promotion. 5 of 6 leadership team members rose from within the company.
• Moderate skin in the game. The director and executive group owns 2.8% of shares; a real but non-majority stake.
• Capital allocation discipline. Prioritized debt repayment (US$720M) over buybacks in FY2026, consistent with deleveraging after Hostess.

• The $961.7 million non-cash impairments in Sweet Baked Snacks during fiscal 2026 left the trailing-twelve-month reported result at $229.5 million against a normalized adjusted earnings figure of $1,030.5 million, scaring off anyone who looks at the bottom line unadjusted.
• The market extrapolates the volume decline and the negative sales guidance without weighing that adjusted earnings per share has been raised twice in a quarter, from $9.75-10.25 to $10.50-11.00.
• Limited analyst coverage for a mid-cap staple with no visible near-term catalyst, while the company quietly prioritizes deleveraging over visible buybacks.

The gap between the reported result and adjusted earnings is the main source of the discount: the market punishes the headline without separating the non-cash impairment from real cash generation. The counterpoint, which this valuation does account for, is that much of the quarter's improvement is non-recurring tariff refunds: net of that $0.84 per share, the starting point is $9.65, not $10.49.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at +6%/year (+34% total): the margin of safety protects the downside. The bull (+21%/year, +159% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Sweet Baked Snacks. Risk of further impairments if the volume decline does not stop following the FY2026 accounting cleanup.
• Customer concentration. Walmart and the top 10 customers account for ~60% of sales with no long-term contracts.
• Commodity volatility. Green coffee, an exclusively imported input, has a history of sharp price shocks.
• FY2027 guidance execution. The margin recovery to ~38.0% adjusted gross is a key assumption with little room for error.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: narrow moat, eroding.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 5% at a PEG of 2.5 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 8% (EBIT/EV) + ROIC 9% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts -10% vs our 5%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor +2%/yr, bull-scenario ceiling +18%/yr over 5y → capital protected, asymmetry in your favor.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, eroding; sources: intangibles, efficient scale → fails the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -10%, within what we project (5%) — the story squares with the numbers.