Summary
Demonstrated solid top-line growth and strong margins on average.
High payouts and yields have attracted flocks of income investors.
Substantial indebtedness and negative covenants are among active financial risks, management expects to reduce leverage.
Several cost saving initiatives are on way which can lead to better bottom-line margins.
Valuation looks attractive from a relative view.
Investment Thesis
Since 1996 B&G Foods (BGS) has acquired 45 brands, brands that are crucial behind the firm’s success. The firm’s dividend policy of paying out a substantial portion of its cash has attracted large flocks of income seekers. B&G has featured 12.33% in 5y dividend growth rate and currently has a payout ratio of 95.12%. Heavy leverage is a key concern for investors at this point. Currently, BGS’s net debt/EBITDA stands at 6.96, which the firm expects to reduce down to 5.1 by the end of the full year. For the full year of 2018, B&G expects net sales of $1.705 billion to $1.72 billion, adjusted EBITDA of $338 million to $343 million, and adjusted diluted earnings per share of $1.98 to $2.05. Sales expectations imply 3.06-2.16% growth in net sales for the year, which is significantly lower than its previous growth rates. To meet its sales expectations, B&G would have to generate a minimum of $477.29 million in Q4 net sales, which I think is economically achievable by the firm. B&G is indeed a risky bet. But valuation is attractive and fundamentals have been satisfactory over the last few years. If you are an income-seeking investor with a higher risk tolerance, B&G might be for you.
