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Pinnacle Foods (PF) Stock Could Be a Great Pick: Here's Why

Zacks Equity Research

Shares of Pinnacle Foods, Inc. PF gained 27.2% over the past one year, outperforming the Zacks categorized Food-Miscellaneous/Diversified industry which witnessed an improvement of 12.7% over the same time frame. The rally was driven by Pinnacle’s impressive earnings history, robust acquisitions and solid growth strategies.

While the Food-Miscellaneous/ Diversified industry is part of the bottom 32% of the Zacks Classified industries (179 out of the 265), the broader Consumer Staples sector is placed at the bottom most of the Zacks Classified sectors (16 out of 16).

Further, we believe there is still much momentum left in the stock, which is evident from its dividend yield of 2.15%, a low beta of 0.31 and long-term earnings growth rate of 6.5%.

What further makes us optimistic about the performance of this Zacks Rank #2 (Buy) stock is its uptrend in estimates over the past 30 days. The Zacks Consensus Estimate for the first quarter of 2017 and the full year has increased 2.1% to 48 cents and $2.48, respectively. In fact, the company anticipates earnings to increase 20.8% in the first quarter and 15.7% in 2017.

Underlying Growth Drivers

Starting with Pinnacle Foods’ past performance, we note that the company reported strong results for the third quarter 2016, wherein its bottom line beat the Zacks Consensus Estimate but revenues missed the same. In fact, the company has delivered an average positive surprise of 2.09% in the last four trailing quarters.

Pinnacle Foods, Inc. Price, Consensus and EPS Surprise

 

Pinnacle Foods, Inc. Price, Consensus and EPS Surprise | Pinnacle Foods, Inc. Quote

Quarterly earnings of 53 cents per share improved 15.2% from the year-ago quarter figure, driven by double-digit sales growth, improved gross profit and a favorable productivity mix. Sales grew 19.3% year over year, driven by the Boulder Brands acquisition (completed in Jan 2016), higher pricing and increased volumes. Gross margin also expanded on the back of improved productivity, the Boulder Brands acquisition and a favorable product mix, offsetting the impact of input cost inflation.

In fact, the Boulder Brands takeover is expected to contribute approximately 8−9 cents to the adjusted earnings per share for the full year 2016 results. Moreover, it is expected to contribute in the range of $460−$480 million to net sales.

Though Pinnacle Foods faces headwinds in the form of higher introductory costs related to product innovation, it has also been witnessing sluggish net sales for the Specialty Foods segment since the past two quarters, Pinnacle Foods remains confident of boosting its growth over the long haul.

A leading manufacturer, marketer and distributor of branded food products, Pinnacle Foods actively manages a diverse portfolio of iconic food brands and regularly innovates in order to further differentiate its brands in the marketplace. Moreover, Pinnacle Foods has an operational excellence program to generate annual productivity savings across the supply chain. These productivity savings, along with higher pricing, have been mitigating the impact of input cost inflation to drive gross margin.

Other Stocks to Consider

Other well-positioned stocks in the food industry include B&G Foods, Inc. BGS, ConAgra Foods, Inc. CAG and Campbell Soup Company CPB.

B&G Foods has an expected earnings growth rate of 8% and carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

ConAgra Foods has an expected earnings growth rate of 8%, while ConAgra has an expected earnings growth rate of 5.6%. Both carry a Zacks Rank #2.

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ConAgra Foods Inc. (CAG): Free Stock Analysis Report
 
Campbell Soup Co. (CPB): Free Stock Analysis Report
 
B&G Foods Inc. (BGS): Free Stock Analysis Report
 
Pinnacle Foods Inc. (PF): Free Stock Analysis Report
 
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