Smucker: Price Paid for Hostess Looks Fair, but Past Execution Mistakes Worry Investors

We don’t anticipate a material change to no-moat Smucker’s fair value estimate of $140 per share for the announced acquisition of Hostess Brands. We think Hostess' investors are the big winners. Hostess’ faster top-line growth, higher gross margin, strength in the convenience channel, and market-leading brands are attractive. However, we think Smucker paid a full price. The acquisition also adds execution and integration risk, which likely worries investors given Smucker’s past disappointments, driving shares down 7%. Even with the Sept. 11 decline, we don’t see much risk-adjusted upside at current prices.