Broad product diversity and strategic market positioning have made B&G Foods (NYSE:BGS) a staple in American supermarkets, while the stock’s high dividend yield has made it attractive to income and institutional investors. The company’s Q4 results exceeded expectations, and the share price has jumped over 24% since. However, Wall Street analysts seem unimpressed, as reflected in the stock’s consensus rating and the average price target.
Island of Misfit Brands
B&G Foods is a branded foods holding company headquartered in Parsippany, New Jersey. The company was formed initially to acquire Bloch & Guggenheimer, a prominent Manhattan-based producer of pickles, relish, and condiments. Since that successful acquisition, the company has adopted a growth strategy centered around acquiring “orphaned” brands – those that no longer align with their parent company’s core business.
Over the following years, B&G has grown its holdings with 20 acquisitions, accounting for an impressive portfolio of 51 brands, such as Green Giant, Ortega, Crisco, Cream of Wheat, and Snackwell’s.
With B&G’s presence considerably prominent in supermarket aisles, it has become a frequent holding for institutional investors, who now own around 60% of the outstanding shares. These include asset management firms like mutual funds, ETFs, and hedge funds. Vanguard is listed as the top shareholder, followed by BlackRock’s iShares.
Recent Financial Results
B&G Foods recently reported Q4 net sales of $578.1 million, surpassing the consensus expectation of $571.44 million. The company’s top line declined 7.2% partially due to reduced pricing linked to Crisco oil due to lower input costs. Nonetheless, the firm reported an increase of 26.3% in sales of Clabber Girl, a brand popular for baking powder and other offerings.
The company’s Q4 adjusted EPS (earnings per share) fell 25% year-over-year to $0.30 but managed to surpass analysts’ consensus estimate of $0.28.
B&G Foods’ President and Chief Executive Officer, Casey Keller, credited the resilient quarter and Fiscal 2023 results to enhanced margins, stable volumes, stronger cash flows, and diminished leverage. He added that the company will continue to pay down debt and reorient its portfolio toward growth.
BGS continues to be favored by income investors due to its high dividend yield. It currently offers a dividend yield of 6.38%. The earnings report helped solidify confidence in the level of future dividends, driving the stock higher.
Is BGS a Good Stock to Buy?
BGS trades towards the middle of the 52-week range of $7.20 to $16.68, with bullish technical indicators – above the 20-day moving average price of $10.25 and a 50-day moving average price of $10.10. It trades above industry and historical averages on an EV to EBITDA (18.94x) basis, so it may be fairly valued at this level.
Following the Q4 print, TD Cowen analyst Robert Moskow raised his price target to $8 from $7 but maintained a Sell rating on BGS, as he thinks that the company’s 2024 guidance is “aggressive,” given the intense competition. The analyst also believes that it will be tough for management to generate enough proceeds through divestitures to reduce the company’s debt levels.
Overall, analysts following the stock are neutral-to-bearish. BGS is rated a Moderate Sell based on ratings of five Wall Street analysts who reviewed the stock in the last three months. The average price target is $9.80, representing a downside of 17.72% from the closing price on March 1.
Final Thoughts
B&G Foods’ recent financial results, stronger cash flows, and reduced leverage, underscore the strength of its operations. The commitment to paying down its debt and re-orienting its brand portfolio towards growth paints a promising picture. At the same time, BGS continues to be an attractive dividend pick.
However, the consenus rating of analysts indicates a bearish sentiment and the average price target projection suggests potential downside. Also, investors should weigh the stock’s valuation relative to its prospects before making any investment decision.
