Overview
Bank of America has altered its recommendations for two major packaged-food companies, growing more positive on JM Smucker and more cautious on General Mills. The bank upgraded Smucker from Neutral to Buy and raised its price target to $130 from $120, using a valuation of 12.5 times its fiscal 2027 earnings estimate. At the same time, it moved General Mills from Buy to Neutral and trimmed the price target to $48 from $55, reflecting reduced growth expectations.
Why Smucker improved
BofA said concerns tied to Smucker's 2023 acquisition of Hostess Brands, a $5.5 billion deal, have diminished. The Hostess unit had been written down by roughly $2 billion and now represents about 11% of Smucker's revenue, down from roughly 15%, which the bank views as limiting further downside risk. Management has indicated that mergers and acquisitions are not a current priority and suggested that share repurchases could become more material once the company reaches its leverage targets.
The bank expects Smucker to stick to its guidance when it reports fiscal third-quarter results on Feb. 26, and it identifies a path to roughly $10 in earnings per share by fiscal 2027. BofA also warned that coffee price deflation over the next 18 months could put pressure on organic sales, but forecasts that lower input costs will support margin expansion and earnings. The bank noted that about 70% to 75% of Smucker's revenue comes from coffee, pet food, peanut butter and international operations - categories it considers to have limited exposure to GLP-1 weight-loss drugs.
Why General Mills was downgraded
BofA said General Mills faces a more protracted recovery than previously anticipated. The earlier Buy recommendation had been predicated on a rebound in pet food and a stabilization in North America Retail, but consumer spending among low- and middle-income households has recovered more slowly than the bank expected. As a result, BofA lowered its view on near-term growth and reduced its price target.
The bank highlighted that current guidance for General Mills implies a wide range of potential outcomes for the second half of the fiscal year - from no improvement in North America Retail to only modest gains. It also pointed to the pet food brand Blue Buffalo, which has not yet reaccelerated and therefore limits valuation upside. Overall, BofA anticipates that volume and sales improvement will remain subdued over the next 12 months and said that shares largely reflect these ongoing pressures.
Implications for investors and sectors
These rating changes affect investors focused on consumer staples, packaged foods and pet food categories. For Smucker, the upgrade reflects a cleaner earnings trajectory and potential margin benefits from lower commodity costs. For General Mills, the downgrade underscores sensitivity to consumer spending patterns, particularly among lower- and middle-income cohorts, and to the pace of recovery in pet food and the North America Retail business.
Note: This analysis reports BofA's published ratings, price targets and commentary. It does not introduce new forecasts or supplemental data beyond the bank's statements.