Players in the Zacks Food – Meat Products industry have been benefiting from their constant efforts to expand capacity and undertake meaningful innovation, taking into account evolving tastes and preferences. The companies are also gaining from their expansion in the plant-based meat space, as consumers’ rising inclination toward health consciousness is driving demand for this category.

Industry players are bearing the brunt of input cost inflation, which is likely to persist in the near term. Nonetheless, the abovementioned upsides and efficient pricing actions are likely to work well for industry participants like Tyson Foods, Inc. (TSN Quick QuoteTSN - Free Report) , Pilgrim's Pride Corporation (PPC Quick QuotePPC - Free Report) , Industrias Bachoco, S.A.B. de C.V. (IBA Quick QuoteIBA - Free Report) and Beyond Meat, Inc. (BYND Quick QuoteBYND - Free Report) .

About the Industry

The Zacks Food – Meat Products industry comprises companies that manufacture, process market, distribute and sell a wide range of meat products like chicken, pork, beef, prepared foods and plant-based meats. Some companies also offer poultry and turkey products, alongside providing nutritional food products and supplements, desserts and drink mixes, and industrial gelatin products. Most of these companies offer their products to retail and foodservice customers, while some also cater to deli and commercial operators, including grocery retailers, grocery wholesalers, meat distributors, warehouse club stores, industrial food processing companies, chain restaurants, international export companies, plant and school cafeterias and hospitals among others. Some of the products offered include frozen whole chickens, primary pork cuts, salads, patties, sandwiches and meatballs.

Major Trends Shaping the Future of the Meat Foods Industry

Favorable Demand, Focus on Innovation: With consumers’ increased health awareness, demand for protein-packed foods has been rising. Consumers, especially fitness enthusiasts. have been adopting rich-protein diets. All of this has been working well for meat product companies, which have been focused on strengthening their portfolio through constant innovation. Certainly, innovation is a thriving concept in the meat foods space. Meatless meat or plant-based meat products have been gaining popularity over the past few years. Consumers’ growing inclination toward trying new products as well as their rising health consciousness, especially due to COVID-19, has been driving demand for substitutes for traditional meat products. Most plant-based food alternatives are touted to contain fewer artificial ingredients and preservatives, thus making them quite healthy. These food options are also considered a useful source of protein by people who practice vegan-dining.  In fact, industry experts believe that plant-based protein may emerge as a major disruptor in the conventional meat market. The growing demand for plant-based food, especially meat alternatives, has led many companies to invest significantly in this arena.

Expansion Endeavors on Track: Companies in the industry are striving to expand their portfolio and market presence through strategic partnerships, acquisitions and capacity expansions. To this end, the companies have been exploring opportunities to increase manufacturing capacity, which includes opening new manufacturing units, making expansions at existing plants and partnering with co-manufacturers. Some of the companies are also undertaking automation technology investments, including accelerating digitalization. Apart from this, some companies like Beyond Meat and Hormel Foods have been focused on unlocking international potential, which is yielding favorable results.

Cost Woes Persist: Input cost inflation is a concern for a number of players in the meat foods industry. Companies are encountering a rise in prices of raw materials, packaging and supplies; freight and logistics; and labor. They have been incurring increased costs of corn, soybean meal, feed ingredients and live animals, which have been plaguing margins. A number of companies expect the inflationary pressure to persist, as evident from their last earnings call. This is likely to keep margins under pressure. That said, the industry players have been looking to battle these challenges through cost optimization measures as well as efficient pricing policies.

Zacks Industry Rank Indicates Solid Prospects

The Zacks Food-Meat Products industry is housed within the broader Zacks Consumer Staples sector. The industry currently carries a Zacks Industry Rank #61, which places it in the top 24% 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 bright 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 positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Since the beginning of March 2022, the industry’s earnings estimate for 2022 has improved 6.1%.

Given the industry’s solid prospects, we present a few stocks that you may want to consider for your portfolio. But before that, it’s worth taking a look at the industry’s performance and current valuation.

Industry Vs. Broader Market

The Zacks Food-Meat Products industry has underperformed the broader Zacks Consumer Staples sector, while outpacing the Zacks S&P 500 over the past year.

The industry has declined 9.1% over this period compared with the broader sector’s drop of 4.3%. Meanwhile, the S&P 500 saw a decline of 10.3%.

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 12.53X compared with the S&P 500’s 17.52X and the sector’s 18.97X.

Over the past five years, the industry has traded as high as 18.5X and as low as 11.41X, with the median being 15.08X as the chart below shows

Price-to-Earnings Ratio (Past 5 Years)

4 Meat Food Stocks to Keep a Close Eye on

Industrias Bachoco: This poultry producer sports a Zacks Rank #1 (Strong Buy). It has been benefiting from its robust brand recognition and strong distribution network. Industrias Bachoco is also gaining from its national coverage in Mexico as well as its diversified product portfolio. Apart from this, focus on productivity and expense control has been working well for IBA. The Zacks Consensus Estimate for IBA’s current fiscal year earnings and sales indicates a rise of 20.8% and 22.2%, respectively, from the prior-year reported figures. The consensus mark for Industrias Bachoco’s earnings has risen by 17.2% over the past 30 days. Shares of IBA have increased 6.8% in the past year.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Price and Consensus: IBA

Tyson Foods: This meat foods company operates in the Beef, Pork, Chicken, and Prepared Foods segments. It has been benefiting from strategic growth efforts, including a focus on protein-packed brands and capacity-expansion endeavors. Tyson Foods has been seeing robust demand in the retail core business lines. Continued recovery in the foodservice channel has also been a driver. Notably, the Zacks Consensus Estimate for TSN’s current fiscal year earnings and sales indicates a rise of 6.9% and 12.3%, respectively, from the prior-year reported figures. The consensus mark for Tyson Foods’ earnings has dipped by 1.9% over the past 30 days. Shares of this Zacks Rank #3 (Hold) company have declined 1.1% in the past year. Tyson Foods is constantly looking for ways to improve cost structure.

Price and Consensus: TSN

Pilgrim’s Pride: This Zacks Rank #3 company has been gaining from its focus on strategic growth initiatives, like a customer-centric approach and capacity expansions. This well-known poultry producer and a fully integrated pork producer has been steadily augmenting the marketing support of its brands as they expand and enter new regions. Additionally, PPC resorts to frequent supply chain improvements to enhance efficiency and reduce costs. The Zacks Consensus Estimate for Pilgrim’s Pride’s earnings for the current fiscal year suggests growth of 88.6% from the figure reported in the year-ago period. The consensus mark for earnings implies a 3.6% jump over the past 30 days. Shares of Pilgrim’s Pride have decreased 1.6% in a year.

Price and Consensus: PPC

Beyond Meat: This manufacturer, marketer and seller of plant-based meat products has been gaining from its strong product portfolio, especially thanks to its focus on innovation. Apart from expanding its portfolio, Beyond Meat is benefiting from efforts to strengthen its distribution network and e-commerce capabilities. A strong base of retail and foodservice customers, along with the rising popularity of plant-based meats, has been working well for this Zacks Rank #3 company. The Zacks Consensus Estimate for Beyond Meat’s top line for the current fiscal year suggests growth of 3.6% from the figure reported in the year-ago period. Like most other food companies, BYND is also currently battling cost and supply-chain headwinds. It is focused on reducing manufacturing costs and managing operational expenditure. The consensus mark for the bottom line has deteriorated from a loss of $4.86 per share to a loss of $5.26 over the past 30 days. Shares of BYND have declined 80% over the past year.

Price and Consensus: BYND