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4 Agriculture - Products Stocks to Watch in a Thriving Industry
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The Zacks Agriculture - Products industry will benefit from the stable demand for food, supported by an increasing population. Rising consumer awareness regarding food ingredients and the preference for healthier options will drive industry expansion. Alternative and innovative agricultural technologies, such as hydroponics and vertical farming, are expected to serve as significant growth drivers due to their inherent advantages.
Companies like West Fraser Timber Co. (WFG - Free Report) , CalMaine Foods (CALM - Free Report) , The Andersons, Inc. (ANDE - Free Report) and Hydrofarm (HYFM - Free Report) are poised to gain from strong end-market demand and their ongoing strategic growth initiatives aimed at capitalizing on these trends.
Industry Description
The Zacks Agriculture – Products industry comprises companies that are either involved in storing agricultural commodities, distributing ingredients to others or engaged in farming crops, livestock and poultry products. Some are engaged in purchasing, storing, transporting, processing and selling agricultural commodities or products derived from the same. They operate grain elevators, wherein income is generated from commodities bought and sold using these elevators or held as inventory. Some companies provide nutrients, advanced indoor and greenhouse lighting, environmental control systems, and accessories for hydroponic gardening — the method of growing plants using mineral nutrient solutions in a water solvent instead of soil. A few players offer innovative, plant-based health and wellness products. Companies producing lumber also fall under this industry.
Trends Shaping the Future of the Agriculture - Products Industry
Solid Demand to Support Industry: Demand for food is directly influenced by population and demographic changes beside income growth and income distribution. Per the United Nations, the global population will rise to 8.5 billion in 2030 and 9.7 billion in 2050. This would lead to a 50% increase in global food demand. In response to rising consumer demand for healthier food alternatives, several agricultural and food-based companies are investing in innovation and augmenting their product and market strategies to bring new quality and healthy food ingredients to the market. Ongoing improvements in grain-handling techniques and investment in larger storage spaces will likely support the industry. Plus, stable earnings across all cycles are ensured, considering the industry’s products are always in demand, irrespective of the condition of the economy.
Hydroponics & Cannabis Are Key Catalysts: Hydroponics is gaining popularity as it gives growers the ability to regulate and manage nutrient delivery, light, air, water, humidity, pests and temperature in an indoor setting. This method enables faster crop growth, with higher yields than traditional soil-based cultivation. It is being utilized in new and emerging industries, including the cultivation of cannabis and hemp. Vertical farms producing organic fruits and vegetables also utilize hydroponics due to the shortage of farmland and environmental vulnerabilities. Vertical farming is the latest agricultural technology, wherein shelves and artificial lighting systems are used to grow produce, thereby minimizing land and water consumption. Total sales for the hydroponic equipment industry are projected to surpass $16 billion by 2025. Even though the cannabis industry is undergoing a rough patch due to an oversupply, its long-term prospects remain intact. In the United States, several states have legalized cannabis for medical or recreational use, making it the largest market in the world. Spending on legal cannabis is projected to increase at a steady pace each year in North America and reach $57 billion by 2028.
Cost-Saving Actions to Aid Margins: Players in the industry are facing rising labor, packaging and distribution costs, among other expenses. Companies engaged in animal products have been facing increasing production costs for a while due to elevated feed ingredient prices. However, feed prices have eased lately. The industry continues to navigate a tight labor market with a spike in wages and higher distribution costs. Recently, the companies have been reporting improvements in the supply-chain issues that have been plaguing them so far. They have been making efforts to bolster their financial conditions, conserve cash and improve profitability by implementing pricing and cost-reduction actions, which are likely to help sustain margins in the future.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Agriculture - Products industry is part of the broader Zacks Basic Materials sector. The industry currently carries a Zacks Industry Rank #102, which places it in the top 41% of the 251 Zacks industries.
The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates bright prospects in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks worth considering for your portfolio, let us look at the industry’s recent stock market performance and valuation.
Industry Versus Broader Market
The Zacks Agriculture – Products industry has outperformed its sector but lagged the Zacks S&P 500 composite over the past 12 months. Stocks in this industry have moved up 11.8% in the past 12 months compared with the S&P 500’s growth of 26.3% and the Basic Materials sector’s rise of 5.9%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month EV/EBITDA ratio, a commonly used multiple for valuing Agriculture - Products stocks, we see that the industry is currently trading at 4.50X compared with the S&P 500’s 13.94X. The Basic Materials sector’s trailing 12-month EV/EBITDA is 11.66X. This is shown in the charts below.
Enterprise Value/EBITDA (EV/EBITDA) Ratio (TTM)
Enterprise Value/EBITDA (EV/EBITDA) Ratio (TTM)
Over the last five years, the industry has traded as high as 9.52X and as low as 3.10X, with the median being 5.10X.
4 Agriculture - Products Stocks to Keep an Eye On
CalMaine Foods: The company is committed to expanding operational capacity, pursuing synergistic acquisitions, and investing in innovative, scale-driven products and services to drive growth. The preference for specialty eggs (including cage-free eggs) continues to surge, driven by state mandates and consumer preference. Consumers are also willing to pay premium prices for these products. Specialty eggs, thus, remain a focal point for CalMaine Foods’ growth strategy. Backed by its efforts, the company’s sales of cage-free eggs now constitute a larger share of its product mix. CalMaine Foods also recently acquired a broiler processing plant, hatchery and feed mill in Dexter, MO, from Tyson Foods. It plans to repurpose the assets for use in the production of eggs and egg products. This will help the company expand its geographic footprint in Missouri and surrounding markets. The recent reports of an outbreak of the highly pathogenic avian influenza ("HPAI") in U.S. poultry flocks are expected to boost egg prices on fears of an impending supply crunch, which bodes well for the company. Backed by these expectations, the company’s shares have gained 18.5% in the past six months.
Jackson, MS-based CalMaine Foods is the largest producer and distributor of fresh shell eggs in the United States. The Zacks Consensus Estimate for CALM’s earnings for fiscal 2024 has moved up 38% in the past 60 days. The company has a trailing four-quarter earnings surprise of 182.2%, on average. CALM flaunts a Zacks Rank #1 (Strong Buy).
West Fraser: The company has been witnessing solid demand for Oriented Strand Board, plywood and other engineered products in North America, driven by the home construction markets. Aided by this momentum, the company’s shares have gained 5.6% in the past six months. WFG’s strategy of optimizing its portfolio through divestitures and mill curtailments is expected to contribute to earnings. West Fraser, meanwhile, is making significant capital investments to modernize its mills. Ongoing efforts to improve efficiency and lowering costs will aid margins. The company recently finalized the acquisition of Spray Lake Sawmills in Cochrane, AB, aligning well with its lumber and treated wood business. With strong financial flexibility and a favorable cost position, the company is well-positioned to maintain a competitive edge.
The Zacks Consensus Estimate for this Vancouver, Canada-based company’s earnings for 2024 suggests year-over-year growth of 304%. Earnings estimates have moved up 29% in the past 60 days. The company has a trailing four-quarter earnings surprise of 248.5%, on average. This diversified wood products company currently carries a Zacks Rank #3 (Hold).
Price: WFG
Andersons: Backed by its strong cash flow, the company continues to add to its core grain and fertilizer verticals, including a greater focus on renewables and opportunities in renewable diesel feedstocks. The renewables segment continues to deliver strong results and the current margin outlook remains strong. Production facilities have been operated efficiently with improved ethanol yield and lower operating costs, which is expected to boost margins. ANDE’s long-term capital projects to lower the carbon intensity of ethanol plants are expected to lead to positive financial results under the Inflation Reduction Act. The company recently acquired Reed and Perrine, which will expand the geographic reach of its Turf business. ANDE has a robust pipeline with significant growth opportunities in each of its businesses. The company’s shares gained 21.5% in the last six months.
Maumee, OH-based Andersons operates in trade, renewables and plant nutrient sectors in the United States and internationally. The Zacks Consensus Estimate for ANDE’s earnings for fiscal 2024 has been unchanged in the past 60 days. The company has a trailing four-quarter earnings surprise of 7.3%, on average. ANDE currently carries a Zacks Rank #3.
Price: ANDE
Hydrofarm: The company is focused on streamlining operations, reducing costs and improving efficiencies amid the challenging operating environment. Major initiatives include narrowing the product and brand portfolio, relocating and consolidating certain manufacturing and distribution centers, and the closure of two company locations. These efforts are expected to drive margins by improving the brand sales mix and productivity, and reducing costs. The company has also been expanding its reach to serve non-cannabis controlled-environment applications, including food, floral, and lawn and garden. HYFM shares gained 9.4% in the last six months.
Shoemakersville, PA-based Hydrofarm engages in the manufacturing and distribution of controlled environment agriculture equipment and supplies in the United States and Canada. The Zacks Consensus Estimate for HYFM’s earnings for fiscal 2024 indicates year-over-year growth of 8.4%. The estimate has moved north by 61% over the past 90 days. HYFM currently carries a Zacks Rank #3.
Price: HYFM
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4 Agriculture - Products Stocks to Watch in a Thriving Industry
The Zacks Agriculture - Products industry will benefit from the stable demand for food, supported by an increasing population. Rising consumer awareness regarding food ingredients and the preference for healthier options will drive industry expansion. Alternative and innovative agricultural technologies, such as hydroponics and vertical farming, are expected to serve as significant growth drivers due to their inherent advantages.
Companies like West Fraser Timber Co. (WFG - Free Report) , CalMaine Foods (CALM - Free Report) , The Andersons, Inc. (ANDE - Free Report) and Hydrofarm (HYFM - Free Report) are poised to gain from strong end-market demand and their ongoing strategic growth initiatives aimed at capitalizing on these trends.
Industry Description
The Zacks Agriculture – Products industry comprises companies that are either involved in storing agricultural commodities, distributing ingredients to others or engaged in farming crops, livestock and poultry products. Some are engaged in purchasing, storing, transporting, processing and selling agricultural commodities or products derived from the same. They operate grain elevators, wherein income is generated from commodities bought and sold using these elevators or held as inventory. Some companies provide nutrients, advanced indoor and greenhouse lighting, environmental control systems, and accessories for hydroponic gardening — the method of growing plants using mineral nutrient solutions in a water solvent instead of soil. A few players offer innovative, plant-based health and wellness products. Companies producing lumber also fall under this industry.
Trends Shaping the Future of the Agriculture - Products Industry
Solid Demand to Support Industry: Demand for food is directly influenced by population and demographic changes beside income growth and income distribution. Per the United Nations, the global population will rise to 8.5 billion in 2030 and 9.7 billion in 2050. This would lead to a 50% increase in global food demand. In response to rising consumer demand for healthier food alternatives, several agricultural and food-based companies are investing in innovation and augmenting their product and market strategies to bring new quality and healthy food ingredients to the market. Ongoing improvements in grain-handling techniques and investment in larger storage spaces will likely support the industry. Plus, stable earnings across all cycles are ensured, considering the industry’s products are always in demand, irrespective of the condition of the economy.
Hydroponics & Cannabis Are Key Catalysts: Hydroponics is gaining popularity as it gives growers the ability to regulate and manage nutrient delivery, light, air, water, humidity, pests and temperature in an indoor setting. This method enables faster crop growth, with higher yields than traditional soil-based cultivation. It is being utilized in new and emerging industries, including the cultivation of cannabis and hemp. Vertical farms producing organic fruits and vegetables also utilize hydroponics due to the shortage of farmland and environmental vulnerabilities. Vertical farming is the latest agricultural technology, wherein shelves and artificial lighting systems are used to grow produce, thereby minimizing land and water consumption. Total sales for the hydroponic equipment industry are projected to surpass $16 billion by 2025. Even though the cannabis industry is undergoing a rough patch due to an oversupply, its long-term prospects remain intact. In the United States, several states have legalized cannabis for medical or recreational use, making it the largest market in the world. Spending on legal cannabis is projected to increase at a steady pace each year in North America and reach $57 billion by 2028.
Cost-Saving Actions to Aid Margins: Players in the industry are facing rising labor, packaging and distribution costs, among other expenses. Companies engaged in animal products have been facing increasing production costs for a while due to elevated feed ingredient prices. However, feed prices have eased lately. The industry continues to navigate a tight labor market with a spike in wages and higher distribution costs. Recently, the companies have been reporting improvements in the supply-chain issues that have been plaguing them so far. They have been making efforts to bolster their financial conditions, conserve cash and improve profitability by implementing pricing and cost-reduction actions, which are likely to help sustain margins in the future.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Agriculture - Products industry is part of the broader Zacks Basic Materials sector. The industry currently carries a Zacks Industry Rank #102, which places it in the top 41% of the 251 Zacks industries.
The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates bright prospects in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks worth considering for your portfolio, let us look at the industry’s recent stock market performance and valuation.
Industry Versus Broader Market
The Zacks Agriculture – Products industry has outperformed its sector but lagged the Zacks S&P 500 composite over the past 12 months. Stocks in this industry have moved up 11.8% in the past 12 months compared with the S&P 500’s growth of 26.3% and the Basic Materials sector’s rise of 5.9%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month EV/EBITDA ratio, a commonly used multiple for valuing Agriculture - Products stocks, we see that the industry is currently trading at 4.50X compared with the S&P 500’s 13.94X. The Basic Materials sector’s trailing 12-month EV/EBITDA is 11.66X. This is shown in the charts below.
Enterprise Value/EBITDA (EV/EBITDA) Ratio (TTM)
Enterprise Value/EBITDA (EV/EBITDA) Ratio (TTM)
Over the last five years, the industry has traded as high as 9.52X and as low as 3.10X, with the median being 5.10X.
4 Agriculture - Products Stocks to Keep an Eye On
CalMaine Foods: The company is committed to expanding operational capacity, pursuing synergistic acquisitions, and investing in innovative, scale-driven products and services to drive growth. The preference for specialty eggs (including cage-free eggs) continues to surge, driven by state mandates and consumer preference. Consumers are also willing to pay premium prices for these products. Specialty eggs, thus, remain a focal point for CalMaine Foods’ growth strategy. Backed by its efforts, the company’s sales of cage-free eggs now constitute a larger share of its product mix. CalMaine Foods also recently acquired a broiler processing plant, hatchery and feed mill in Dexter, MO, from Tyson Foods. It plans to repurpose the assets for use in the production of eggs and egg products. This will help the company expand its geographic footprint in Missouri and surrounding markets. The recent reports of an outbreak of the highly pathogenic avian influenza ("HPAI") in U.S. poultry flocks are expected to boost egg prices on fears of an impending supply crunch, which bodes well for the company. Backed by these expectations, the company’s shares have gained 18.5% in the past six months.
Jackson, MS-based CalMaine Foods is the largest producer and distributor of fresh shell eggs in the United States. The Zacks Consensus Estimate for CALM’s earnings for fiscal 2024 has moved up 38% in the past 60 days. The company has a trailing four-quarter earnings surprise of 182.2%, on average. CALM flaunts a Zacks Rank #1 (Strong Buy).
You can see the complete list of today’s Zacks #1 Rank stocks here.
Price: CALM
West Fraser: The company has been witnessing solid demand for Oriented Strand Board, plywood and other engineered products in North America, driven by the home construction markets. Aided by this momentum, the company’s shares have gained 5.6% in the past six months. WFG’s strategy of optimizing its portfolio through divestitures and mill curtailments is expected to contribute to earnings. West Fraser, meanwhile, is making significant capital investments to modernize its mills. Ongoing efforts to improve efficiency and lowering costs will aid margins. The company recently finalized the acquisition of Spray Lake Sawmills in Cochrane, AB, aligning well with its lumber and treated wood business. With strong financial flexibility and a favorable cost position, the company is well-positioned to maintain a competitive edge.
The Zacks Consensus Estimate for this Vancouver, Canada-based company’s earnings for 2024 suggests year-over-year growth of 304%. Earnings estimates have moved up 29% in the past 60 days. The company has a trailing four-quarter earnings surprise of 248.5%, on average. This diversified wood products company currently carries a Zacks Rank #3 (Hold).
Price: WFG
Andersons: Backed by its strong cash flow, the company continues to add to its core grain and fertilizer verticals, including a greater focus on renewables and opportunities in renewable diesel feedstocks. The renewables segment continues to deliver strong results and the current margin outlook remains strong. Production facilities have been operated efficiently with improved ethanol yield and lower operating costs, which is expected to boost margins. ANDE’s long-term capital projects to lower the carbon intensity of ethanol plants are expected to lead to positive financial results under the Inflation Reduction Act. The company recently acquired Reed and Perrine, which will expand the geographic reach of its Turf business. ANDE has a robust pipeline with significant growth opportunities in each of its businesses. The company’s shares gained 21.5% in the last six months.
Maumee, OH-based Andersons operates in trade, renewables and plant nutrient sectors in the United States and internationally. The Zacks Consensus Estimate for ANDE’s earnings for fiscal 2024 has been unchanged in the past 60 days. The company has a trailing four-quarter earnings surprise of 7.3%, on average. ANDE currently carries a Zacks Rank #3.
Price: ANDE
Hydrofarm: The company is focused on streamlining operations, reducing costs and improving efficiencies amid the challenging operating environment. Major initiatives include narrowing the product and brand portfolio, relocating and consolidating certain manufacturing and distribution centers, and the closure of two company locations. These efforts are expected to drive margins by improving the brand sales mix and productivity, and reducing costs. The company has also been expanding its reach to serve non-cannabis controlled-environment applications, including food, floral, and lawn and garden. HYFM shares gained 9.4% in the last six months.
Shoemakersville, PA-based Hydrofarm engages in the manufacturing and distribution of controlled environment agriculture equipment and supplies in the United States and Canada. The Zacks Consensus Estimate for HYFM’s earnings for fiscal 2024 indicates year-over-year growth of 8.4%. The estimate has moved north by 61% over the past 90 days. HYFM currently carries a Zacks Rank #3.
Price: HYFM