Growth & Income Stock: B&G Foods, Inc.

Earnings estimates have been rising for B&G Foods, Inc. (BGS: 13.78 0.00 0.00%) after the company reported a solid third quarter in which EPS beat the Zacks Consensus Estimate by 11%. Despite a modest increase in sales, the company was able to grow its margins significantly, leading to a 20% increase in operating income year-over-year.

The stock has risen more than 20% since its latest earnings surprise, but shares remain reasonably priced. The company also pays a dividend that yields an attractive 5.0%. It is a Zacks #2 Rank (Buy) stock.

Company Description

B&G Foods, Inc. manufactures various shelf-stable foods, including hot cereals, fruit spreads, spices, seasonings, salad dressings, Mexican food, pickles and other specialty foods products. Its brands include Cream of Wheat, Cream of Rice, Emeril's, Las Palmas, Ortega and Red Devil.

The company is headquartered in Parsippany, New Jersey and has a market cap of $647 million.

Third Quarter Results

B&G reported third quarter earnings per share of 20 cents, beating the Zacks Consensus Estimate by 11%. It was a 43% increase over the same quarter in 2009.

Net sales increased a modest 1.0% due in part to slightly higher prices and volumes. The gross margin expanded from 29.2% of sales to 31.3%, leading to an 8.2% increase in gross profit. The margin increase was due to a reduction in coupons and a decrease in commodity and ingredient costs.

Meanwhile, operating income grew 19.6% as the company lowered its selling, general and administrative expenses.

Outlook

Earnings estimates have been climbing recently, as seen in the company's Price & Consensus chart:

The Zacks Consensus Estimate for 2010 is 81 cents, representing a 40% increase over 2009 EPS. The 2011 estimate is currently 90 cents, equating to 11% growth. It is a Zacks #2 Rank (Buy) stock.

Dividend

B&G Foods pays a dividend yielding an attractive 5.0%. Back in 2008, however, the company cut its quarterly dividend from 21.2 cents to 17 cents per share. It hasn't moved it since.

Its payout ratio of 91% is relatively high too, so don't expect a dividend increase anytime soon.

Valuation

Shares are up more than 20% since its latest earnings surprise, but valuation still remains in check. The stock trades at 15.1x forward earnings, a discount to the industry average of 16.5x. Its price to book multiple of 2.9 is higher than the peer group at 2.1, however.

Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.