The Zacks Food-Miscellaneous industry consists of companies that manufacture and sell a wide range of food and packaged food items such as cereals, natural and organic products, bakery items, spices and condiments, and frozen items. Some of the companies also provide comfort food items such as chocolates and ready-to-serve meals, soups and snacks. The companies operating in this space sell their products mostly through wholesalers, distributors, large retail organizations and grocery chains.
Let’s take a look at the major industry themes:
Companies in the miscellaneous food universe are benefitting from burgeoning demand stemming from the coronavirus-led panty loading as well as increased at-home consumption. Incidentally, with more Americans staying at home and working remotely, the demand for food-related items, especially packaged foods, has risen sharply. Also, to maintain social distancing, consumers are largely reducing the frequency of their shopping trips, and in turn loading pantries at once. Consequently, food companies are witnessing increased demand from retail, mass merchants, supermarkets and e-tail customers, helping offset the weak demand from foodservice clients. Such trends are working well for players like Smucker (SJM), Kellogg (K), General Mills (GIS), Campbell Soup (CPB) and Kraft Heinz (KHC) in the food industry.
Players in the food industry frequently upgrade or widen their offerings through innovation to keep pace with consumers’ changing tastes and preferences. Also, companies often engage in portfolio refinement through strategic buyouts and divestiture of non-core elements. Sysco Corporation (SYY) and McCormick (MKC) are a few popular players who have bolstered their portfolio with prudent acquisitions. In fact, a number of miscellaneous food companies are enriching their portfolio by adding more natural and organic brands to meet consumers’ growing inclination toward healthy offerings.
Input cost inflation has been a hurdle for many food industry players like Conagra Brands (CAG), Mondelez International (MDLZ) and Lamb Weston (LW). Overall, food companies have been reeling under rising costs of commodities like grains, vegetables, dairy items, eggs as well as animal feed. Moreover, increased logistics, warehouse and packaging expenses have raised the cost burden. Apart from this, some players are lately seeing high costs associated with operating amid the pandemic – like increased pay to frontline workers, incentives and bonuses, and costs related to sanitization and safety measures.
Food companies have been taking to saving initiatives to tide over cost-related challenges and to enhance margins. Savings are being achieved through efforts such as streamlining of operational structures, optimizing manufacturing capacity and supply networks. Apart from this, efficient pricing to strike a balance between volumes and profits is likely to keep helping.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Food-Miscellaneous industry is housed within the broader Zacks Consumer Staples 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 solid 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 position in the top 50% of the Zacks-ranked industries is a result of the positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually becoming more confident about this group’s earnings growth potential. Since the end of April 2020, the industry’s consensus earnings estimate for the current year has climbed by a couple of cents.
Given the encouraging scenario, we will present a few stocks that one can buy or retain, given their solid growth endeavors. But before that, it’s worth taking a look at the industry’s performance and current valuation.
Industry Underperforms the S&P 500
The Zacks Food-Miscellaneous industry has underperformed the S&P 500 composite, while it has outpaced the broader Zacks Retail – Wholesale sector over the past year.
The industry has dropped 0.7% over this period against the S&P 500’s growth of 5.2%. Meanwhile, the broader sector has declined 9.1% 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 18.54X compared with the S&P 500’s 22.22X and the sector’s 19.74X.
Over the past five years, the industry has traded as high as 22.9X and at the median of 18.57X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
The food space appears to be in a good position amid the COVID-19 mayhem, given the elevated demand and stock piling of essential items. Increased social distancing and at-home consumption have stimulated demand for packaged food products in particular. Companies are also gaining from their focus on innovation as well as portfolio refinement. Apart from this, their saving efforts should help tackle input cost inflation as well as high costs associated with COVID-19.
All said, we are presenting stocks from the Food-Miscellaneous universe that are well positioned to capitalize on the opportunities. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
B&G Foods, Inc. (BGS), which has gained 34.2% year to date, currently carries a Zacks Rank #1. The Zacks Consensus Estimate for its current-fiscal earnings per share has moved 28.7% north in the last 60 days. Notably, B&G Foods surpassed earnings estimates by an average of 5.4% in the trailing four quarters.
Price and Consensus: BGS
United Natural Foods, Inc. (UNFI): The Zacks Rank #1 stock has surged considerably and almost doubled in the year so far. The Zacks Consensus Estimate for its current-fiscal earnings has climbed 14.7% in the last 60 days.
Price and Consensus: UNFI
The Hain Celestial Group, Inc. (HAIN) has gained 23.9% in the year-to-date period. The natural and organic foods provider delivered average positive earnings surprise of 9.9% in the last four quarters. The Zacks Rank #1 company’s consensus estimate for the current fiscal year has climbed 8.2% over the past 60 days.
Price and Consensus: HAIN
Flowers Foods, Inc. (FLO) has gained 3.1% year to date. The packaged bakery products provider has average positive earnings surprise of 5.7% for the last four quarters. The Zacks Rank #2 (Buy) company’s consensus estimate for the current fiscal year has moved up 2.8% over the past 60 days.
Price and Consensus: FLO
Blue Apron Holdings, Inc. (APRN) has gained 47.6% in the year-to-date period. The Zacks Rank #2 (Buy) company’s consensus estimate for the current fiscal year has risen 9.7% over the past 60 days.
Price and Consensus: APRN
These Stocks Are Poised to Soar Past the Pandemic
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United Natural Foods, Inc. (UNFI) : Free Stock Analysis Report
Sysco Corporation (SYY) : Free Stock Analysis Report
The J. M. Smucker Company (SJM) : Free Stock Analysis Report
McCormick Company, Incorporated (MKC) : Free Stock Analysis Report
Mondelez International, Inc. (MDLZ) : Free Stock Analysis Report
Lamb Weston Holdings Inc. (LW) : Free Stock Analysis Report
The Kraft Heinz Company (KHC) : Free Stock Analysis Report
Kellogg Company (K) : Free Stock Analysis Report
The Hain Celestial Group, Inc. (HAIN) : Free Stock Analysis Report
General Mills, Inc. (GIS) : Free Stock Analysis Report
Flowers Foods, Inc. (FLO) : Free Stock Analysis Report
Campbell Soup Company (CPB) : Free Stock Analysis Report
Conagra Brands Inc. (CAG) : Free Stock Analysis Report
BG Foods, Inc. (BGS) : Free Stock Analysis Report
Blue Apron Holdings, Inc. (APRN) : Free Stock Analysis Report
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