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Jefferies upgrades Smucker and McCormick, forecasting food industry mergers

Smuckers fruit products are displayed on a shelf at a grocery store.
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Jefferies research upgraded the J.M. Smucker Company and McCormick to buy from hold in anticipation of increased merger and acquisition activity.

"Although fundamentals have arguably worsened, we believe they are contributing to an acceleration in M&A activity and cost-cutting," wrote analyst Akshay Jagdale in Friday's note. "As a result, risk/reward is sufficiently attractive for us to upgrade."

"That said, valuations now look 'cheap' relative to the S&P and fairly valued on absolute basis," he continued. We have not been able to say that about food stocks for at least the past 2 to 3 years."