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4 Food Stocks Worth Relishing on Strong Industry Trends
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Players in the Zacks Food-Miscellaneous industry have been benefiting from their constant focus on innovation, product upgrades and portfolio refinement to cater to consumers’ altering tastes and preferences. Elevated at-home consumption has been working well for food companies.
Additionally, strong pricing endeavors have been helping food companies like Conagra Brands, Inc. (CAG - Free Report) , The J. M. Smucker Company (SJM - Free Report) , Campbell Soup Company (CPB - Free Report) and Lamb Weston Holdings, Inc. (LW - Free Report) battle cost inflation.
About the Industry
The Zacks Food-Miscellaneous industry consists of companies that manufacture and sell a wide range of food and packaged food items such as cereals, flour, sauces, bakery items, spices and condiments, natural and organic food items as well as frozen products. Some of the companies also provide comfort food items such as chocolates and ready-to-serve meals, soups and snacks. A few players are engaged in providing pet food products and supplements. Several food companies also offer organic and natural products. The companies operating in this space sell their products mostly through wholesalers, distributors, large retail organizations, grocery chains, mass merchandisers, drug stores as well as e-commerce service providers. Some also cater to foodservice channels, including restaurants, cafes and hotels. Others offer services to schools, hospitals and industry caterers.
Major Trends Shaping the Future of the Food Industry
Refining Portfolio to Suit Consumer Needs: Food companies have been taking to product upgrades and innovations on a regular basis to cater to consumers’ changing tastes and preferences. Companies are also focused on making capacity expansions and technology investments to enhance efficiency in their operations. Apart from this, companies have been coming up with organic and nutrient-rich food options as health and wellness have gained further importance amid the pandemic. A number of miscellaneous food companies are enriching their portfolio by adding more plant-based and natural brands. Additionally, companies often engage in portfolio refinement through strategic buyouts and divestiture of non-core elements.
Higher At-Home Consumption Fuels Demand: Food companies have been witnessing improved demand from retailers (compared with pre-pandemic levels) thanks to consumers’ elevated at-home consumption. Notably, the pandemic has made society even more aware of the importance of consuming healthy and nutritious food by cooking at home. At-home demand is likely to remain elevated as a number of Americans have cultivated cooking and baking at home as a new habit. As a result, the demand for organic and fresh food products has been high. Increased at-home consumption has been working well for companies offering packaged food and snacks, ready-to-cook meals, as well as confectionery and bakery items.
E-commerce Investments Gain Predominance: Consumers’ high dependency on digital transactions has pushed several food companies to bolster online offerings. Online sales have been boosting revenues of several food companies. To continue building on the sales momentum, companies in the food space are striving to bolster operations at fulfillment centers.
Rising Costs: Food players have been encountering input cost inflation for a while now. A number of the companies, in their last earnings releases, stated that they expect input costs to remain high in the near term. Apart from this, supply-chain hurdles have increased warehouse, packaging and other logistics expenses. The rise in these expenses, along with a tough labor market, has been plaguing margins. That said, companies have been focused on undertaking initiatives to mitigate cost-related challenges. These include streamlining operational structures, optimizing manufacturing capacity and supply networks as well as adopting effective pricing policies.
Zacks Industry Rank Indicates Solid Prospects
The Zacks Food-Miscellaneous industry is housed within the broader Zacks Consumer Staples sector. The industry currently carries a Zacks Industry Rank #70, which places it in the top 28% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. 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.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gaining confidence in this group’s earnings growth potential. Since the beginning of December 2022, the industry’s earnings estimate for 2023 has increased nearly 1%.
Let’s take a look at the industry’s performance and current valuation.
Industry Vs. Broader Market
The Zacks Food-Miscellaneous industry has outperformed the S&P 500 and the broader Zacks Consumer Staples sector over the past year.
The industry has dipped 0.9% over this period compared with the S&P 500’s decline of 9.8%. Meanwhile, the broader sector has dropped 5% in the said time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month price-to-earnings (P/E), which is commonly used for valuing consumer staples stocks, the industry is currently trading at 17.22X compared with the S&P 500’s 18.74X and the sector’s 18.55X.
Over the past five years, the industry has traded as high as 20.6X and as low as 15.08X, with the median being at 17.93X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
4 Food Stocks to Keep a Close Eye on
Conagra Brands: This consumer-packaged goods food company has been gaining from its robust pricing actions in the face of increasing cost of goods sold inflation. Constant focus on innovation as well as ongoing execution of the Conagra Way playbook is working well for this Zacks Rank #1 (Strong Buy) company. Conagra has a long-term earnings growth rate of 7%. The Zacks Consensus Estimate for CAG’s current financial-year EPS has risen 8.1% over the past 30 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
The consensus mark for current fiscal year sales suggests growth of 7.2% from the year-ago period reported figure. Shares of CAG have risen 4.2% in the past year.
Price and Consensus: CAG
Lamb Weston: Lamb Weston’s efforts to boost capacity enable it to meet rising demand conditions for snacks and fries. This value-added frozen potato products company has been gaining from pricing actions, which has been helping it battle input, manufacturing and transportation cost inflation. The consensus mark for current fiscal year sales suggests growth of 19.6% from the year-ago period reported figure.
The Zacks Consensus Estimate for Lamb Weston’s current financial year's EPS has jumped 30.7% over the past 30 days. LW has a long-term earnings growth rate of 29.8%. Shares of this Zacks Rank #1 company have rallied 52.6% in the past year.
Price and Consensus: LW
Campbell Soup: This well-known manufacturer and marketer of food and beverage products has been gaining from brand strength, pricing actions and supply chain improvements. Apart from this, Campbell Soup is benefiting from strength in its Snacks business as well as focus on innovation.
The Zacks Consensus Estimate for Campbell Soup’s current financial year's EPS has increased 3.1% over the past 60 days. CPB has a long-term earnings growth rate of 3.4%. Shares of this Zacks Rank #2 (Buy) company have gained 16.8% in the past year. The consensus mark for current fiscal year sales suggests growth of 8.2% from the year-ago period reported figure.
Price and Consensus: CPB
The J.M. Smucker: The company has been progressing well with core priorities, which include driving commercial excellence; reshaping portfolio; streamlining cost structure and unleashing its organization to win. Strength in the Away from Home division and efficient pricing have been upsides for The J. M. Smucker Company. The manufacturer and marketer of branded food and beverage products has been witnessing strength in the Pet and Coffee businesses. SJM’s investments in growth areas like the Uncrustables brand bodes well. This Zacks Rank #2 stock has jumped 9.4% in a year’s time.
The Zacks Consensus Estimate for The J. M. Smucker Company’s current financial-year EPS has risen by a penny over the past 30 days. SJM has a long-term earnings growth rate of 3.3%. The consensus mark for current fiscal year sales suggests growth of nearly 6% from the year-ago period reported figure.
Price and Consensus: SJM
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4 Food Stocks Worth Relishing on Strong Industry Trends
Players in the Zacks Food-Miscellaneous industry have been benefiting from their constant focus on innovation, product upgrades and portfolio refinement to cater to consumers’ altering tastes and preferences. Elevated at-home consumption has been working well for food companies.
Additionally, strong pricing endeavors have been helping food companies like Conagra Brands, Inc. (CAG - Free Report) , The J. M. Smucker Company (SJM - Free Report) , Campbell Soup Company (CPB - Free Report) and Lamb Weston Holdings, Inc. (LW - Free Report) battle cost inflation.
About the Industry
The Zacks Food-Miscellaneous industry consists of companies that manufacture and sell a wide range of food and packaged food items such as cereals, flour, sauces, bakery items, spices and condiments, natural and organic food items as well as frozen products. Some of the companies also provide comfort food items such as chocolates and ready-to-serve meals, soups and snacks. A few players are engaged in providing pet food products and supplements. Several food companies also offer organic and natural products. The companies operating in this space sell their products mostly through wholesalers, distributors, large retail organizations, grocery chains, mass merchandisers, drug stores as well as e-commerce service providers. Some also cater to foodservice channels, including restaurants, cafes and hotels. Others offer services to schools, hospitals and industry caterers.
Major Trends Shaping the Future of the Food Industry
Refining Portfolio to Suit Consumer Needs: Food companies have been taking to product upgrades and innovations on a regular basis to cater to consumers’ changing tastes and preferences. Companies are also focused on making capacity expansions and technology investments to enhance efficiency in their operations. Apart from this, companies have been coming up with organic and nutrient-rich food options as health and wellness have gained further importance amid the pandemic. A number of miscellaneous food companies are enriching their portfolio by adding more plant-based and natural brands. Additionally, companies often engage in portfolio refinement through strategic buyouts and divestiture of non-core elements.
Higher At-Home Consumption Fuels Demand: Food companies have been witnessing improved demand from retailers (compared with pre-pandemic levels) thanks to consumers’ elevated at-home consumption. Notably, the pandemic has made society even more aware of the importance of consuming healthy and nutritious food by cooking at home. At-home demand is likely to remain elevated as a number of Americans have cultivated cooking and baking at home as a new habit. As a result, the demand for organic and fresh food products has been high. Increased at-home consumption has been working well for companies offering packaged food and snacks, ready-to-cook meals, as well as confectionery and bakery items.
E-commerce Investments Gain Predominance: Consumers’ high dependency on digital transactions has pushed several food companies to bolster online offerings. Online sales have been boosting revenues of several food companies. To continue building on the sales momentum, companies in the food space are striving to bolster operations at fulfillment centers.
Rising Costs: Food players have been encountering input cost inflation for a while now. A number of the companies, in their last earnings releases, stated that they expect input costs to remain high in the near term. Apart from this, supply-chain hurdles have increased warehouse, packaging and other logistics expenses. The rise in these expenses, along with a tough labor market, has been plaguing margins. That said, companies have been focused on undertaking initiatives to mitigate cost-related challenges. These include streamlining operational structures, optimizing manufacturing capacity and supply networks as well as adopting effective pricing policies.
Zacks Industry Rank Indicates Solid Prospects
The Zacks Food-Miscellaneous industry is housed within the broader Zacks Consumer Staples sector. The industry currently carries a Zacks Industry Rank #70, which places it in the top 28% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. 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.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gaining confidence in this group’s earnings growth potential. Since the beginning of December 2022, the industry’s earnings estimate for 2023 has increased nearly 1%.
Let’s take a look at the industry’s performance and current valuation.
Industry Vs. Broader Market
The Zacks Food-Miscellaneous industry has outperformed the S&P 500 and the broader Zacks Consumer Staples sector over the past year.
The industry has dipped 0.9% over this period compared with the S&P 500’s decline of 9.8%. Meanwhile, the broader sector has dropped 5% in the said time frame.
One-Year Price Performance
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Industry's Current Valuation
On the basis of forward 12-month price-to-earnings (P/E), which is commonly used for valuing consumer staples stocks, the industry is currently trading at 17.22X compared with the S&P 500’s 18.74X and the sector’s 18.55X.
Over the past five years, the industry has traded as high as 20.6X and as low as 15.08X, with the median being at 17.93X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
4 Food Stocks to Keep a Close Eye on
Conagra Brands: This consumer-packaged goods food company has been gaining from its robust pricing actions in the face of increasing cost of goods sold inflation. Constant focus on innovation as well as ongoing execution of the Conagra Way playbook is working well for this Zacks Rank #1 (Strong Buy) company. Conagra has a long-term earnings growth rate of 7%. The Zacks Consensus Estimate for CAG’s current financial-year EPS has risen 8.1% over the past 30 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
The consensus mark for current fiscal year sales suggests growth of 7.2% from the year-ago period reported figure. Shares of CAG have risen 4.2% in the past year.
Price and Consensus: CAG
Lamb Weston: Lamb Weston’s efforts to boost capacity enable it to meet rising demand conditions for snacks and fries. This value-added frozen potato products company has been gaining from pricing actions, which has been helping it battle input, manufacturing and transportation cost inflation. The consensus mark for current fiscal year sales suggests growth of 19.6% from the year-ago period reported figure.
The Zacks Consensus Estimate for Lamb Weston’s current financial year's EPS has jumped 30.7% over the past 30 days. LW has a long-term earnings growth rate of 29.8%. Shares of this Zacks Rank #1 company have rallied 52.6% in the past year.
Price and Consensus: LW
Campbell Soup: This well-known manufacturer and marketer of food and beverage products has been gaining from brand strength, pricing actions and supply chain improvements. Apart from this, Campbell Soup is benefiting from strength in its Snacks business as well as focus on innovation.
The Zacks Consensus Estimate for Campbell Soup’s current financial year's EPS has increased 3.1% over the past 60 days. CPB has a long-term earnings growth rate of 3.4%. Shares of this Zacks Rank #2 (Buy) company have gained 16.8% in the past year. The consensus mark for current fiscal year sales suggests growth of 8.2% from the year-ago period reported figure.
Price and Consensus: CPB
The J.M. Smucker: The company has been progressing well with core priorities, which include driving commercial excellence; reshaping portfolio; streamlining cost structure and unleashing its organization to win. Strength in the Away from Home division and efficient pricing have been upsides for The J. M. Smucker Company. The manufacturer and marketer of branded food and beverage products has been witnessing strength in the Pet and Coffee businesses. SJM’s investments in growth areas like the Uncrustables brand bodes well. This Zacks Rank #2 stock has jumped 9.4% in a year’s time.
The Zacks Consensus Estimate for The J. M. Smucker Company’s current financial-year EPS has risen by a penny over the past 30 days. SJM has a long-term earnings growth rate of 3.3%. The consensus mark for current fiscal year sales suggests growth of nearly 6% from the year-ago period reported figure.
Price and Consensus: SJM
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