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Watch These 3 Natural Food Stocks on Stellar Industry Trends
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The growing health consciousness among consumers and their inclination toward nutritious and wholesome products have been advantageous for firms operating in the Zacks Natural Foods Products industry. Companies are bolstering their product portfolios through creative offerings and strategic acquisitions. Furthermore, certain players are channeling increased investments into augmenting their digital capabilities.
However, industry players have been struggling with the challenges associated with escalating operating expenses. Nonetheless, natural food companies are actively implementing proactive measures to tackle the issue of cost inflation, particularly through strategic pricing strategies. These factors position Performance Food Group Company (PFGC - Free Report) , Sprouts Farmers Market, Inc. (SFM - Free Report) and Farmer Bros. Co. (FARM - Free Report) well for growth.
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
Shifting Toward Healthier Eating Habits: Consumer preferences are increasingly leaning toward nutritious and natural food options, driving the demand for fresh and organic products. This trend benefits businesses in the natural food industry as many individuals prioritize healthy eating, even when dining at home. The demand for fresh, natural and organic foods is expected to remain strong, with a resurgence in foodservice channels for companies in this sector. Restaurants and cafes are also adapting by incorporating more wholesome ingredients into their menus to cater to health-conscious customers. Industry experts foresee a continued focus on healthier food choices, which is likely to keep fueling the popularity of fresh and organic offerings.
Expanding Product Range and Market Presence: Companies are actively expanding their product portfolios and market reach through strategic partnerships, acquisitions and retail expansions. There's a notable emphasis on research and development to introduce convenient home cooking options with minimal preservatives yet rich in flavor. Products based on plant-based, gluten-free and keto-friendly ingredients are gaining traction. To meet the growing demand for fresh and organic products, companies are ramping up production capabilities. Furthermore, the shift toward online shopping has benefited some companies in the natural food industry, prompting investments in digital transformation, including online sales platforms, delivery systems and digital marketing strategies.
High Operating Costs: Companies have been bearing the brunt of increases in operating expenses. The mounting costs linked to personnel expenditures, such as salaries, wages, commissions and benefits, as well as escalated repair and maintenance outlays, have impacted companies’ 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 Bright Prospects
The Zacks Natural Foods Products industry is housed within the broader Zacks Retail - Wholesale sector. The industry currently carries a Zacks Industry Rank #13, which places it in the top 5% 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 risen 35% over this period compared with the broader sector’s growth of 29.7% and the S&P 500’s increase of 28.3%.
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 15.95X compared with the S&P 500’s 21.38X and the sector’s 22.86X.
Over the past five years, the industry has traded as high as 20.31X and as low as 10.88X, with the median being 14.93X, 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 #1 (Strong Buy) stock has rallied 49.5% in the past year. The company has been taking several initiatives to expand its customer base. 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. SFM has been actively enhancing its same-day delivery capabilities and store pickup services to provide greater convenience to customers across its locations. You can see the complete list of today’s Zacks #1 Rank stocks here.
Additionally, the company has been making steady strides in establishing a stronger presence in the natural organic market, capitalizing on the considerable demand within this segment. The consensus mark for Sprouts Farmers’ earnings per share (EPS) for the current fiscal year has increased by 2 cents to $2.95 over the past 30 days. The Zacks Consensus Estimate for sales and EPS for 2024 suggests growth of 6.7% and 3.9%, respectively, from the figure reported in the year-ago period.
Price and Consensus: SFM
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.’ current fiscal year bottom line has remained unchanged over the past 30 days at a loss of 74 cents. This indicates a rise of 57.5% from the prior-year reported figure. Shares of this Zacks Rank #2 (Buy) company have surged 49.4% in the past six months.
Price and Consensus: FARM
Performance Food Group: The Zacks Rank #3 (Hold) company is well-positioned for long-term sales and profit growth due to its robust position in the growing food-away-from-home market. Investments in fiscal capacity and customer-facing staff have led to market share gains in lucrative channels, while diverse channel exposure places Performance Food Group well for whitespace opportunities, reducing risks associated with external economic fluctuations.
Strength in the Foodservice segment, growth in Vistar and resilience showcased by the Convenience business have been working well for the company. The Zacks Consensus Estimate for Performance Food Group’s fiscal 2024 sales and earnings indicates growth of 3.2% and 9.8% from the prior-year reported figure. The consensus mark for the EPS has remained unchanged over the past 30 days. Shares of PFGC have increased 30.3% in the past six months.
Price and Consensus: PFGC
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Watch These 3 Natural Food Stocks on Stellar Industry Trends
The growing health consciousness among consumers and their inclination toward nutritious and wholesome products have been advantageous for firms operating in the Zacks Natural Foods Products industry. Companies are bolstering their product portfolios through creative offerings and strategic acquisitions. Furthermore, certain players are channeling increased investments into augmenting their digital capabilities.
However, industry players have been struggling with the challenges associated with escalating operating expenses. Nonetheless, natural food companies are actively implementing proactive measures to tackle the issue of cost inflation, particularly through strategic pricing strategies. These factors position Performance Food Group Company (PFGC - Free Report) , Sprouts Farmers Market, Inc. (SFM - Free Report) and Farmer Bros. Co. (FARM - Free Report) well for growth.
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
Shifting Toward Healthier Eating Habits: Consumer preferences are increasingly leaning toward nutritious and natural food options, driving the demand for fresh and organic products. This trend benefits businesses in the natural food industry as many individuals prioritize healthy eating, even when dining at home. The demand for fresh, natural and organic foods is expected to remain strong, with a resurgence in foodservice channels for companies in this sector. Restaurants and cafes are also adapting by incorporating more wholesome ingredients into their menus to cater to health-conscious customers. Industry experts foresee a continued focus on healthier food choices, which is likely to keep fueling the popularity of fresh and organic offerings.
Expanding Product Range and Market Presence: Companies are actively expanding their product portfolios and market reach through strategic partnerships, acquisitions and retail expansions. There's a notable emphasis on research and development to introduce convenient home cooking options with minimal preservatives yet rich in flavor. Products based on plant-based, gluten-free and keto-friendly ingredients are gaining traction. To meet the growing demand for fresh and organic products, companies are ramping up production capabilities. Furthermore, the shift toward online shopping has benefited some companies in the natural food industry, prompting investments in digital transformation, including online sales platforms, delivery systems and digital marketing strategies.
High Operating Costs: Companies have been bearing the brunt of increases in operating expenses. The mounting costs linked to personnel expenditures, such as salaries, wages, commissions and benefits, as well as escalated repair and maintenance outlays, have impacted companies’ 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 Bright Prospects
The Zacks Natural Foods Products industry is housed within the broader Zacks Retail - Wholesale sector. The industry currently carries a Zacks Industry Rank #13, which places it in the top 5% 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 risen 35% over this period compared with the broader sector’s growth of 29.7% and the S&P 500’s increase of 28.3%.
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 15.95X compared with the S&P 500’s 21.38X and the sector’s 22.86X.
Over the past five years, the industry has traded as high as 20.31X and as low as 10.88X, with the median being 14.93X, as the chart below shows:
Price-to-Earnings Ratio (Past 5 Years)
.jpg)
3 Natural Food Stocks to Keep a Close Eye On
Sprouts Farmers: This Zacks Rank #1 (Strong Buy) stock has rallied 49.5% in the past year. The company has been taking several initiatives to expand its customer base. 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. SFM has been actively enhancing its same-day delivery capabilities and store pickup services to provide greater convenience to customers across its locations. You can see the complete list of today’s Zacks #1 Rank stocks here.
Additionally, the company has been making steady strides in establishing a stronger presence in the natural organic market, capitalizing on the considerable demand within this segment. The consensus mark for Sprouts Farmers’ earnings per share (EPS) for the current fiscal year has increased by 2 cents to $2.95 over the past 30 days. The Zacks Consensus Estimate for sales and EPS for 2024 suggests growth of 6.7% and 3.9%, respectively, from the figure reported in the year-ago period.
Price and Consensus: SFM
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.’ current fiscal year bottom line has remained unchanged over the past 30 days at a loss of 74 cents. This indicates a rise of 57.5% from the prior-year reported figure. Shares of this Zacks Rank #2 (Buy) company have surged 49.4% in the past six months.
Price and Consensus: FARM
Performance Food Group: The Zacks Rank #3 (Hold) company is well-positioned for long-term sales and profit growth due to its robust position in the growing food-away-from-home market. Investments in fiscal capacity and customer-facing staff have led to market share gains in lucrative channels, while diverse channel exposure places Performance Food Group well for whitespace opportunities, reducing risks associated with external economic fluctuations.
Strength in the Foodservice segment, growth in Vistar and resilience showcased by the Convenience business have been working well for the company. The Zacks Consensus Estimate for Performance Food Group’s fiscal 2024 sales and earnings indicates growth of 3.2% and 9.8% from the prior-year reported figure. The consensus mark for the EPS has remained unchanged over the past 30 days. Shares of PFGC have increased 30.3% in the past six months.
Price and Consensus: PFGC
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