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J.M. Smucker's Cost Inflation Outlook 'Relatively Benign' Despite Iran War Headwinds, Morgan Stanley Says

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J.M. Smucker's Cost Inflation Outlook 'Relatively Benign' Despite Iran War Headwinds, Morgan Stanley Says

J.M. Smucker's (SJM) cost inflation outlook was "relatively benign" despite headwinds from the ongoing Middle East conflict, with the food producer confident of managing the pressure, Morgan Stanley said in note e-mailed Wednesday.

On Tuesday, J.M. Smucker Chief Financial Officer Tucker Marshall said the Jif peanut butter maker expected cost inflation of low-single-digits for the year, excluding green coffee and tariffs.

Morgan Stanley said it was "somewhat surprised by the relatively benign" cost outlook following the US-Israel war with Iran, compared with Campbell's (CPB) projection for a mid-single-digit percentage increase.

The Iran war started at the end of February, disrupting energy shipments through the crucial Strait of Hormuz and leading to broad-based inflation concerns.

"While (the cost inflation outlook) could ultimately end up higher depending on the duration of the conflict, (J.M. Smucker's) management sounded confident in its ability to manage through the pressure," Morgan Stanley said in a note to clients. "We do not view it as a major issue given flexibility/conservatism elsewhere in the guide."

The brokerage raised its price target on the J.M. Smucker stock to $110 from $106 while maintaining its equal-weight rating.

The company's shares were up 3.4% in Wednesday afternoon trade, bringing its year-to-date gains to 19%.

"(J.M. Smucker) also framed the outlook as prudent several times, which appears particularly true on the topline, with (2027) sales guided down 3% to 4%, including (first-quarter roughly) flat, implying a steep deceleration post-(first quarter) as lower coffee prices flow through with very limited volume elasticity assumed," Morgan Stanley said.

J.M. Smucker's margin visibility seems solid, mainly driven by the coffee segment, which is expected to benefit from the mechanical lap of tariffs and lower green coffee costs, despite headwinds related to lower prices and volume reduction, the brokerage said. Potential tariff refunds could also be another source of possible upside for the Folgers and Cafe Bustelo coffee brands owner, according to the note.

Morgan Stanley raised its fiscal 2027 earnings estimate for J.M. Smucker to reflect its robust fourth-quarter results and lower-than-expected cost pressure.

Price: $116.02, Change: $+3.63, Percent Change: +3.23%

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