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Folgers Coffee Company’s Investment Analysis

Folgers Coffee is one of the most successful companies selling coffee blends and drinks. It is owned by J.M. Smucker Co., the price of the stock of which is the object of discussion in this paper (Folgers Coffee. n.d.; J.M. Smucker Co., n.d.). The company’s current (December 1, 2021) stock (SJM) price is $126.55 (Folgers Coffee Stock Price, n.d.). The 52-week high/low is a technical indicator referred to as the highest and lowest price at which a stock has traded during the past period equals 1 year (J.M. Smucker Co, n.d.). For this case, the highest price for the past 52 weeks is $140.65, and the lowest price is $110.53.

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J.M. Smucker Co. does pay a dividend (typically, 4 dividends per year, excluding specials), with the most recent one paid off on October 11, 2021. Annualized dividend or the amount of the most recent dividend equals $3.96 (with quarter amount equals $0.99) while the dividend yield equals 3.1% (Dividend History for J.M. Smucker Co. (SJM), n.d.).

It is possible to determine if the stock is overvalued or undervalued based on the dividend valuation model. This model is also referred to as the dividend discount model (DDM) and is used to measure the value of the stock based on the sum of future income flows with consideration of the time value of money. Gordon Growth Model is one of the most widespread variations of the DDM. It is calculated according to the following formula: V0 = D1 / (r-g); where V0 –is the current value of a stock, D1 is the dividend payment in one period from now, r is the estimated cost of equity capital, and g is the constant growth rate of the company’s dividends. Assuming that the company’s equity in 2021 equals 5.90% and the expected dividend yield equals 3.2% with an amount equaling 3.96, it is possible to calculate the value of the stock as the following: V0 = 3.96 / (0.059-0.032) = $146.66 (JM Smucker Co WACC Co, n.d.). It implies that the stock is undervalued compared to the current cost.

References

Dividend History for J.M. Smucker Co. (SJM). (n.d.). Web.

Folgers Coffee Stock Price. (n.d.). Web.

Folgers Coffee. (n.d.). Web.

J. M. Smucker (SJM) Declares $0.99 Quarterly Dividend; Increases Buyback Plan by 5M Shares. (n.d.). Web.

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J.M. Smucker Co. (n.d.). Web.

JM Smucker Co WACC. (n.d.). Web.

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StudyCorgi. (2022, October 13). Folgers Coffee Company’s Investment Analysis. Retrieved from https://studycorgi.com/folgers-coffee-companys-investment-analysis/

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StudyCorgi. "Folgers Coffee Company’s Investment Analysis." October 13, 2022. https://studycorgi.com/folgers-coffee-companys-investment-analysis/.

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StudyCorgi. 2022. "Folgers Coffee Company’s Investment Analysis." October 13, 2022. https://studycorgi.com/folgers-coffee-companys-investment-analysis/.

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StudyCorgi. (2022) 'Folgers Coffee Company’s Investment Analysis'. 13 October.

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