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Nomad Foods (NOMD) Upgraded to Strong Buy: Should You Add?

Zacks Equity Research

On Jun 7, 2017, we upgraded Nomad Foods Limited NOMD by a notch to a Zacks Rank #1 (Strong Buy) - manufacturer and distributor of frozen foods primarily in the U.K.

Key Attributes

Nomad produces, markets and distributes brands in 17 countries and has the leading market share in Western Europe.

Last month, the company reported strong first-quarter 2017 results on the back of decent organic revenue growth. Both the top and the bottom line surpassed the Zacks Consensus Estimate. Additionally, Nomad raised its 2017 revenue, EBITDA and free cash flow guidance.

Although the company’s first-quarter reported revenue decreased 2.9%, its organic revenue increased 1.1% (against 2.7% decline in fourth-quarter 2016 and 6.1% drop in the year-ago quarter), marking a return to positive growth trajectory. It was driven by 3% volume and mix growth, which was partly offset by 1.9% of negative pricing. This was primarily due to the company’s planned strategy to offer trade support alongside UK price increases.

Nomad's sales trends improved sequentially, helped by its focus on "must-win battles", which accounted for approximately 70% of revenues. The company’s top three markets U.K, Italy and Germany, experienced another quarter of sequential improved revenue trends.

Meanwhile, shares of the company have outperformed the Zacks categorized Food-Miscellaneous/Diversified industry so far this year. The stock rose 52.3%, while the industry gained less than 2% during the same time period. That said, we have noticed that Nomad has outperformed the industry in each of four-week and 12-week time frames.

Additionally, the company’s earnings are expected to increase 4.4% this year on just 0.9% revenue growth. Further, upward estimate revisions reflect optimism in the stock’s prospects. Current year estimates have moved north by 14.3% in the last month, reflecting one upward revision. Similarly, next year’s estimates have been increased 10.6% in the same time period, as a result of one upward revision.

Nomad has a Value Style Score of ‘A’ on our style score system that helps us to identify potential outperformers. This score condenses all valuation metrics into one actionable score that helps investors steer clear of ‘value traps’ and identify stocks that are truly trading at a discount.

Other Stocks to Consider

Investors can also consider favorably ranked stocks in the same space that include SunOpta Inc. STKL, MGP Ingredients, Inc. MGPI and McCormick & Company, Incorporated MKC.

SunOpta, sporting a Zacks Rank #1, is expected to grow 15% in the next five years, faring a lot better than the industry’s average of 9%. You can see the complete list of today’s Zacks #1 Rank stocks here.

MGP Ingredients surpassed earnings estimates in three of the last four quarters, resulting in an average beat of 27.09%.

McCormick has a trailing 12-month ROE of 28.03%, a lot higher than the industry’s 11.27% level.

MGP Ingredients and McCormick hold a Zacks Rank #2 (Buy).

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