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3 Natural Food Stocks in Focus on Impressive Industry Trends
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The increasing health awareness among consumers and their preference for nutritious and healthy products have proven beneficial for companies in the Zacks Natural Foods Products industry. These companies are enhancing the strength of their portfolios through innovative product offerings and strategic acquisitions. Additionally, some players are directing greater investments toward expanding their digital capabilities.
However, industry players have been struggling with the challenges associated with rising input costs and escalating operating expenses. However, natural food companies are taking proactive measures to address the issue of rising cost inflation through pricing strategies. These upsides offer companies like Sprouts Farmers Market, Inc. (SFM - Free Report) , Sovos Brands, Inc. and Farmer Bros. Co. (FARM - Free Report) a favorable position.
About the Industry
The Zacks Natural Foods Products industry comprises companies that manufacture and sell a wide range of organic and natural fruits, vegetables, dairy products, flour, bakery items, meat and seafood, as well as spices and condiments. These also offer packaged ready-to-eat meals, snacks, cereals and frozen food. Some companies offer comfort food items like ice cream and soups. A few players provide personal care products as well as health supplements. The firms operating in this space sell their products mostly through wholesalers, distributors, large retail organizations, grocery chains, mass merchandisers, drug stores and e-commerce service providers. Some also cater to food service channels, including restaurants, cafes and hotels. Others offer services to schools, hospitals and industry caterers. Some players operate through independent retail stores.
Major Trends Shaping the Future of the Natural Food Industry
Rising Emphasis on Healthier Food Choices: The rising inclination of consumers toward healthful and nourishing food has led to an increased demand for organic and fresh food items. This trend is particularly favorable for businesses operating in the natural food product industry. Despite the growth in outdoor dining, a significant number of individuals continue to prioritize the consumption of natural and organic food at home to support their overall well-being. These changing preferences are expected to maintain the demand for fresh, natural and organic food products. Moreover, companies in the natural food product sector are witnessing a revival in their foodservice business channels. Even while dining out, customers are showing a preference for healthier food options. As a result, restaurants and cafes are inclined to incorporate more natural and wholesome ingredients into their menus to cater to this growing health-conscious consumer base. Industry experts foresee a continued focus on healthier food choices, which is likely to keep fueling the popularity of fresh and organic offerings.
Initiatives to Fortify Product Lineup and Market Reach: Companies are actively broadening their portfolio and market footprint through strategic alliances, acquisitions and the expansion of their retail presence. Within this sector, there is a concerted effort toward research and development, with a focus on introducing easily cookable home products and formulating items that are low in preservatives while retaining rich flavors. To meet the escalating demand for fresh and organic goods, companies are enhancing production capabilities. Moreover, some companies in the natural food industry have been benefiting from higher e-commerce sales due to consumers’ growing inclination toward online shopping.
Elevated Input Costs: The natural food industry players have been grappling with escalating input costs. The prices of essential commodities such as cooking oil, vegetables, dairy products and animal feed have been climbing. Additionally, supply-chain disruptions have exacerbated expenses related to warehousing, packaging and logistics. Nevertheless, companies are proactively implementing strategies to address these cost-related hurdles. They are focusing on streamlining operational structures, maximizing manufacturing capacity and implementing effective pricing policies to navigate these challenges.
High Operating Costs: Companies have been bearing the brunt of increases in operating expenses. The mounting costs linked to higher volumes, including personnel expenditures such as salaries, wages, commissions and benefits, as well as escalated repair and maintenance outlays, have significantly impacted their operational budgets. Additionally, certain companies are experiencing elevated costs due to the establishment of new stores and higher marketing expenditures. These factors pose concerns about maintaining healthy profit margins.
Zacks Industry Rank Indicates Solid Prospects
The Zacks Natural Foods Products industry is housed within the broader Zacks Retail - Wholesale sector. The industry currently carries a Zacks Industry Rank #56, which places it in the top 22% 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 robust near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
We present a few stocks that you may want to consider for your portfolio. However, before that, it’s worth taking a look at the industry’s performance and current valuation.
Industry vs. Broader Market
The Zacks Natural Foods Products industry has outperformed the broader Zacks Retail - Wholesale sector as well as the Zacks S&P 500 over the past year.
The industry has rallied 31.7% over this period compared with the broader sector’s growth of 17.6% and the S&P 500’s increase of 20.6%.
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 Retail-Wholesale stocks, the industry is currently trading at 15.64X compared with the S&P 500’s 19.91X and the sector’s 22.16X.
Over the past five years, the industry has traded as high as 20.31X and as low as 11.82X, with the median being 15.41X, as the chart below shows:
Price-to-Earnings Ratio (Past 5 Years)
3 Natural Food Stocks to Keep a Close Eye On
Sprouts Farmers: This Zacks Rank #2 (Buy) company has been actively enhancing its same-day delivery capabilities and store pickup services to provide greater convenience to customers across its locations. This renowned grocery retailer has been experiencing significant advantages due to its commitment to product innovation, the prioritization of e-commerce, the expansion of private-label selections, targeted marketing and competitive pricing. Sprouts Farmers has been making steady strides in establishing a stronger presence in the natural organic market, capitalizing on the considerable demand within this segment. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Sprouts Farmers’ sales and earnings for the full year 2024 suggests growth of 6.1% and 1%, respectively, from the figure reported in the year-ago period. The consensus mark for the earnings per share (EPS) has remained unchanged over the past 30 days. Shares of SFM have surged 30.4% in the past six months.
Price and Consensus: SFM
Sovos Brands: The consumer-packaged food company’s focus on brand building, along with its strong distribution network, bodes well. Sovos Brands has been benefiting from the robust momentum of Rao’s Megabrand. This Zacks Rank #2 stock has increased 20.9% in the past six months.
The Zacks Consensus Estimate for Sovos Brands’ top and bottom lines for the full year 2024 suggests growth of 9.6% and 13.9%, respectively, from the figure reported in the year-ago period. The consensus mark for SOVO’s EPS has remained unchanged over the past 30 days.
Price and Consensus: SOVO
Farmer Bros.: The company has been benefiting from its key business transition efforts. A focus on direct store delivery has been particularly working well for Farmer Bros. Additionally, favorable coffee pricing has been a driver. FARM’s reorganization efforts and cost-reduction strategies keep it well-positioned for long-term growth.
The Zacks Consensus Estimate for Farmer Bros’ fiscal 2024 earnings indicates a rise of 65.5% from the prior-year reported figure. The consensus mark for the EPS has remained unchanged over the past 30 days. Shares of this Zacks Rank #3 (Hold) company have increased 21% in the past six months.
Price and Consensus: FARM
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3 Natural Food Stocks in Focus on Impressive Industry Trends
The increasing health awareness among consumers and their preference for nutritious and healthy products have proven beneficial for companies in the Zacks Natural Foods Products industry. These companies are enhancing the strength of their portfolios through innovative product offerings and strategic acquisitions. Additionally, some players are directing greater investments toward expanding their digital capabilities.
However, industry players have been struggling with the challenges associated with rising input costs and escalating operating expenses. However, natural food companies are taking proactive measures to address the issue of rising cost inflation through pricing strategies. These upsides offer companies like Sprouts Farmers Market, Inc. (SFM - Free Report) , Sovos Brands, Inc. and Farmer Bros. Co. (FARM - Free Report) a favorable position.
About the Industry
The Zacks Natural Foods Products industry comprises companies that manufacture and sell a wide range of organic and natural fruits, vegetables, dairy products, flour, bakery items, meat and seafood, as well as spices and condiments. These also offer packaged ready-to-eat meals, snacks, cereals and frozen food. Some companies offer comfort food items like ice cream and soups. A few players provide personal care products as well as health supplements. The firms operating in this space sell their products mostly through wholesalers, distributors, large retail organizations, grocery chains, mass merchandisers, drug stores and e-commerce service providers. Some also cater to food service channels, including restaurants, cafes and hotels. Others offer services to schools, hospitals and industry caterers. Some players operate through independent retail stores.
Major Trends Shaping the Future of the Natural Food Industry
Rising Emphasis on Healthier Food Choices: The rising inclination of consumers toward healthful and nourishing food has led to an increased demand for organic and fresh food items. This trend is particularly favorable for businesses operating in the natural food product industry. Despite the growth in outdoor dining, a significant number of individuals continue to prioritize the consumption of natural and organic food at home to support their overall well-being. These changing preferences are expected to maintain the demand for fresh, natural and organic food products. Moreover, companies in the natural food product sector are witnessing a revival in their foodservice business channels. Even while dining out, customers are showing a preference for healthier food options. As a result, restaurants and cafes are inclined to incorporate more natural and wholesome ingredients into their menus to cater to this growing health-conscious consumer base. Industry experts foresee a continued focus on healthier food choices, which is likely to keep fueling the popularity of fresh and organic offerings.
Initiatives to Fortify Product Lineup and Market Reach: Companies are actively broadening their portfolio and market footprint through strategic alliances, acquisitions and the expansion of their retail presence. Within this sector, there is a concerted effort toward research and development, with a focus on introducing easily cookable home products and formulating items that are low in preservatives while retaining rich flavors. To meet the escalating demand for fresh and organic goods, companies are enhancing production capabilities. Moreover, some companies in the natural food industry have been benefiting from higher e-commerce sales due to consumers’ growing inclination toward online shopping.
Elevated Input Costs: The natural food industry players have been grappling with escalating input costs. The prices of essential commodities such as cooking oil, vegetables, dairy products and animal feed have been climbing. Additionally, supply-chain disruptions have exacerbated expenses related to warehousing, packaging and logistics. Nevertheless, companies are proactively implementing strategies to address these cost-related hurdles. They are focusing on streamlining operational structures, maximizing manufacturing capacity and implementing effective pricing policies to navigate these challenges.
High Operating Costs: Companies have been bearing the brunt of increases in operating expenses. The mounting costs linked to higher volumes, including personnel expenditures such as salaries, wages, commissions and benefits, as well as escalated repair and maintenance outlays, have significantly impacted their operational budgets. Additionally, certain companies are experiencing elevated costs due to the establishment of new stores and higher marketing expenditures. These factors pose concerns about maintaining healthy profit margins.
Zacks Industry Rank Indicates Solid Prospects
The Zacks Natural Foods Products industry is housed within the broader Zacks Retail - Wholesale sector. The industry currently carries a Zacks Industry Rank #56, which places it in the top 22% 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 robust near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
We present a few stocks that you may want to consider for your portfolio. However, before that, it’s worth taking a look at the industry’s performance and current valuation.
Industry vs. Broader Market
The Zacks Natural Foods Products industry has outperformed the broader Zacks Retail - Wholesale sector as well as the Zacks S&P 500 over the past year.
The industry has rallied 31.7% over this period compared with the broader sector’s growth of 17.6% and the S&P 500’s increase of 20.6%.
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 Retail-Wholesale stocks, the industry is currently trading at 15.64X compared with the S&P 500’s 19.91X and the sector’s 22.16X.
Over the past five years, the industry has traded as high as 20.31X and as low as 11.82X, with the median being 15.41X, as the chart below shows:
Price-to-Earnings Ratio (Past 5 Years)
3 Natural Food Stocks to Keep a Close Eye On
Sprouts Farmers: This Zacks Rank #2 (Buy) company has been actively enhancing its same-day delivery capabilities and store pickup services to provide greater convenience to customers across its locations. This renowned grocery retailer has been experiencing significant advantages due to its commitment to product innovation, the prioritization of e-commerce, the expansion of private-label selections, targeted marketing and competitive pricing. Sprouts Farmers has been making steady strides in establishing a stronger presence in the natural organic market, capitalizing on the considerable demand within this segment. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Sprouts Farmers’ sales and earnings for the full year 2024 suggests growth of 6.1% and 1%, respectively, from the figure reported in the year-ago period. The consensus mark for the earnings per share (EPS) has remained unchanged over the past 30 days. Shares of SFM have surged 30.4% in the past six months.
Price and Consensus: SFM
Sovos Brands: The consumer-packaged food company’s focus on brand building, along with its strong distribution network, bodes well. Sovos Brands has been benefiting from the robust momentum of Rao’s Megabrand. This Zacks Rank #2 stock has increased 20.9% in the past six months.
The Zacks Consensus Estimate for Sovos Brands’ top and bottom lines for the full year 2024 suggests growth of 9.6% and 13.9%, respectively, from the figure reported in the year-ago period. The consensus mark for SOVO’s EPS has remained unchanged over the past 30 days.
Price and Consensus: SOVO
Farmer Bros.: The company has been benefiting from its key business transition efforts. A focus on direct store delivery has been particularly working well for Farmer Bros. Additionally, favorable coffee pricing has been a driver. FARM’s reorganization efforts and cost-reduction strategies keep it well-positioned for long-term growth.
The Zacks Consensus Estimate for Farmer Bros’ fiscal 2024 earnings indicates a rise of 65.5% from the prior-year reported figure. The consensus mark for the EPS has remained unchanged over the past 30 days. Shares of this Zacks Rank #3 (Hold) company have increased 21% in the past six months.
Price and Consensus: FARM
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