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Growth & Income

Estimates have been rising for B&G Foods, Inc. (BGS - Snapshot Report) after the company delivered solid third quarter results. It is a Zacks #1 Rank (Strong Buy) stock.

Net sales were up 6% on strong volume and EPS jumped 32% as the company leveraged its interest expense. Analysts expect strong earnings growth to continue over the next couple of years too.

Based on consensus estimates, analysts project 20% EPS growth this year and 7% growth next year. In addition, the company pays a dividend that yields a juicy 4.4%.

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.

On October 28, the company announced that it has entered into an agreement to acquire the Mrs. Dash, Molly McButter, Sugar Twin, Baker's Joy, Static Guard and Kleen Guard brands from Unilever for approximately $325 million.

B&G Foods is headquartered in Parsippany, New Jersey and has a market cap of $995 million.

Third Quarter Results

B&G delivered solid third quarter results on October 25. Net sales rose 6% year-over-year to $133 million due in large part to higher unit volume.

Higher commodity costs squeezed margins at B&G, but only slightly. The gross margin declined 10 basis points to 31.2% of net sales. Income before taxes surged 27% as the company leveraged its interest expense.

Earnings per share came in at 25 cents, meeting the Zacks Consensus Estimate. It was a stellar 32% increase over the same quarter in 2010.

Estimates Rising

Despite EPS coming in-line with estimates, analysts revised their estimates for both 2011 and 2012 higher, sending the stock to a Zacks #1 Rank (Buy).

The Zacks Consensus Estimate for 2011 is now $1.08, representing 20% growth over 2010 EPS. The 2012 consensus estimate is 7% higher at $1.16.

Attractive Dividend

In addition to solid earnings growth, B&G pays a dividend that yields a juicy 4.4%. The company recently announced the it was raising its quarterly dividend by 10%.

Valuation

The valuation picture looks reasonable for BGS. Shares trade at 18.0x 12-month forward earnings, a premium to the industry average of 15.5x. But this premium appears justified given the company's solid growth projections and fat dividend yield.

Its prices to sales ratio of 1.9 is in-line with its peers.

The Bottom Line

With rising earnings estimates, solid growth projections, a 4.4% dividend yield and reasonable valuation, B&G Foods offers investors strong total return potential.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Co-Editor of the Reitmeister Value Investor.

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