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4 Agriculture Operations Stocks to Watch Amid Mixed Industry Trends
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The Zacks Agriculture – Operations industry is poised to benefit from innovations and improved consumer demand for healthy products. Investments in acquisitions, joint ventures and expansions are likely to fortify the prospects of the industry players. Logistic and supply-chain issues, higher input costs, and elevated operational expenses have been affecting the industry. Supply-chain concerns and commodity cost pressures have been affecting the profitability of agricultural companies for a while.
Nonetheless, continued investments in assets and technological capabilities to innovate and serve customers bode well for players like Archer Daniels Midland Company (ADM - Free Report) , Corteva Inc. (CTVA - Free Report) , Adecoagro S.A. (AGRO - Free Report) and Limoneira Co (LMNR - Free Report) .
About the Industry
The Zacks Agriculture – Operations industry comprises companies that produce or procure, transport, store, process, and distribute agricultural commodities to consumers. It also distributes ingredients to other parts of the agriculture industry (including clothing, animal feed, energy and industrial product). Some industry players engage in dairy operations, land transformation activities and the development of food ingredients using gene-editing technology. The industry encompasses production activities related to traditional farming of crops (like corn, soybean, wheat and cotton), and livestock and poultry products (including meat, dairy and eggs). The products are mostly sold at grocery stores or exported overseas. These are also used as feedstock for other industries. For example, cotton is used in the clothing industry and corn is used in the ethanol industry.
What's Shaping the Future of Agriculture - Operations Industry
Growing Organic Demand: The industry has been benefiting from an organic movement prompted by consumers’ increasing demand for healthier food. Agriculturists are adopting organic production techniques, and curtailing the use of chemicals and pesticides. Innovations in food processing, improved grain-handling techniques, larger storage spaces and strong emerging market demand are conducive to the industry’s growth. Healthy eating habits are likely to accelerate the purchase and consumption of alternative proteins. Focus on nourishment and wellness is pushing microbiome solutions to the forefront. The companies have been investing in acquisitions and joint ventures to build top-notch ingredients and solutions for meeting the demand for healthy products.
Agricultural Export Projections: Per the U.S. Department of Agriculture, agricultural export projections for fiscal 2023 (ending Sep 30) of $193.5 billion suggest a decline of $2.5 billion from the fiscal 2022 forecast of a record $196 billion. Declines in cotton, beef and sorghum exports are the key factors resulting in lower export projections. Cotton exports are expected to decline due to drought-slashed exportable volumes. Beef exports are expected to be impacted by tight U.S. supplies. Sorghum exports are likely to decline on sharply lower exportable supplies. Wheat exports are expected to be affected by lower unit values. Meanwhile, higher exports of soybeans and horticultural products are likely to aid. Soybean exports are forecast to be up $2.2 billion to a record $35.2 billion on higher prices. Horticulture exports of $39.5 billion are expected to increase $400 million on higher exports of fresh and processed fruits and vegetables, offset by declines in tree nut exports.
Elevated Costs:Industry participants have been witnessing higher costs due to rising raw material, freight and logistics costs, including constraints in labor and trucking resources, leading to higher lead times for deliveries. Supply-chain concerns and commodity cost pressures have been affecting the profitability of agricultural companies for a while. Also, the conflict in Ukraine has been creating headwinds. The companies have resorted to solid pricing strategies to counter the rising raw material costs. The participants are looking to counter the global supply-chain challenges by forming partnerships and distribution strategies. Despite the pricing strategies, supply-chain challenges and cost inflation are expected to continue hurting margins in the near term.
Companies in the industry continue to face raised SG&A expenses due to higher performance-related compensation, project-related costs, commissions and variable compensation. The companies are also witnessing elevated costs for investments in technology and innovation to stay ahead of the race. Continued deleverage in SG&A expenses might continue to have a bearing on the profitability of companies.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Agriculture – Operations industry is a 14-stock group within the broader Zacks Consumer Staples sector. The industry currently carries a Zacks Industry Rank #216, which places it at the bottom 14% 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 dull 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 bottom 50% of the Zacks-ranked industries resulted from a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry vs. Broader Market
The Zacks Agriculture – Operations industry has outperformed the S&P 500 and the Zacks Consumer Staples sector in a year.
The stocks in the industry have collectively gained 19.2% in a year against declines of 17.2% for the Zacks S&P 500 composite and 8.5% for the sector.
One-Year Price Performance
Agriculture - Operations Industry's Valuation
On the basis of the forward 12-month price-to-earnings (P/E) ratio, which is commonly used for valuing Consumer Staples stocks, the industry is currently trading at 14.1X compared with the S&P 500’s 15.74X and the sector’s 17.75X.
Over the last five years, the industry has traded as high as 17.73X, as low as 10.24X and at the median of 14.32X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
4 Agriculture Operations Stocks to Keep an Eye on
None of the stocks in the Zacks Agriculture – Operations universe currently sports a Zacks Rank #1 (Strong Buy) or #2 (Buy). Here, we suggest four stocks with a Zacks Rank #3 (Hold) from the same industry, which investors may hold on to. You can see the complete list of today’s Zacks #1 Rank stocks here.
Archer Daniels: The Chicago, IL-based agricultural product company’s leadership in key global trends like flexitarian diets, nutrition and sustainable materials has been a key contributor to its momentum. Its focus on making investments in assets and technological capabilities to serve customers efficiently is likely to be a significant growth driver. Solid demand, improved productivity and product innovations have been driving growth. Its Readiness program, positive cash flow and solid performance at the Nutrition unit have been aiding the results. The company has been progressing well on its three strategic pillars — optimize, drive and growth.
Management is optimistic about the company’s 2022 results and envisions another year of strong earnings growth. It is poised to benefit from the robust performance of its Nutrition segment, owing to significant gains in the Human and Animal Nutrition units. The Zacks Consensus Estimate for Archer Daniels’ 2022 earnings has moved up by a penny in the past 30 days to $6.84 per share. The Zacks Consensus Estimate for ADM’s 2022 sales and earnings suggests growth of 15.6% and 31.8%, respectively, from the year-ago period’s reported figures. It has reported an earnings surprise of 20.1%, on average, in the trailing four quarters. The company has rallied 33% in the past year.
Price and Consensus: ADM
Corteva: The Wilmington, DE-based pure-play agriculture company is poised to drive above-market growth through its industry-leading product pipeline, and rigorous approach to innovation and operating discipline. It is poised to accelerate its pace of innovation and existing leadership position in the high-value sector to meet the increasing market demand for naturally derived products through three new collaboration agreements. Strong price execution in seed, supply-chain flexibility and solid market demand for its balanced and differentiated new product portfolios are driving CTVA’s performance.
The Zacks Consensus Estimate for Corteva’s 2022 earnings has moved up by a penny in the past 30 days. The Zacks Consensus Estimate for its 2022 sales and earnings suggests growth of 10.5% and 20.5%, respectively, from the year-ago period’s reported figures. The company has reported an earnings surprise of 22.2%, on average, in the trailing four quarters. The CTVA stock has rallied 33.6% in the past year.
Price and Consensus: CTVA
Adecoagro: The Luxembourg-based agro-industrial company engages in farming crops and other agricultural products, dairy operations, sugar, ethanol and energy production, and land transformation activities in South America. The company benefits from high asset flexibility, which gives it a competitive advantage in the current uncertain market outlook. Its flexibility was reflected by its ability to increase the mix of anhydrous ethanol to benefit from its high prices and recovering demand. The company’s Farming & Land Transformation businesses have been benefiting from the consolidation of the five-year plan investments made in Crops, Rice and Dairy businesses, along with its focus on efficiencies.
The company’s shares have lost 13.2% in the past year. The Zacks Consensus Estimate for AGRO’s 2022 earnings has moved up 9.6% in the past 30 days. The Zacks Consensus Estimate for the company’s 2022 sales suggests growth of 10.2% from the year-ago period’s reported figure.
Price and Consensus: AGRO
Limoneira: The Santa Paula, CA-based Limoneira is a diversified citrus growing, packing, selling and marketing company with related agribusiness activities and real estate development operations. The company’s strategic approach toward fresh utilization has been resulting in robust sales of fresh lemons by its sales and marketing team. The company’s avocado segment’s sales are poised to benefit from robust pricing, which has almost doubled year over year. LMNR is on track with its new strategic plan to expand One World of Citrus, increase its avocado plantings and strategically sell certain assets to dramatically increase cash flow in the near term.
The company’s shares have declined 20.1% in the past year. The Zacks Consensus Estimate for LMNR’s fiscal 2022 loss estimate has narrowed by 7 cents in the past 30 days. The Zacks Consensus Estimate for its fiscal 2022 sales suggests growth of 5.4% from the year-ago period’s reported figure. The company’s loss estimate for fiscal 2022 of 4 cents has narrowed significantly from the loss of 22 cents reported in the prior year. LMNR has reported an earnings surprise of 13.3%, on average, in the trailing four quarters.
Price and Consensus: LMNR
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4 Agriculture Operations Stocks to Watch Amid Mixed Industry Trends
The Zacks Agriculture – Operations industry is poised to benefit from innovations and improved consumer demand for healthy products. Investments in acquisitions, joint ventures and expansions are likely to fortify the prospects of the industry players. Logistic and supply-chain issues, higher input costs, and elevated operational expenses have been affecting the industry. Supply-chain concerns and commodity cost pressures have been affecting the profitability of agricultural companies for a while.
Nonetheless, continued investments in assets and technological capabilities to innovate and serve customers bode well for players like Archer Daniels Midland Company (ADM - Free Report) , Corteva Inc. (CTVA - Free Report) , Adecoagro S.A. (AGRO - Free Report) and Limoneira Co (LMNR - Free Report) .
About the Industry
The Zacks Agriculture – Operations industry comprises companies that produce or procure, transport, store, process, and distribute agricultural commodities to consumers. It also distributes ingredients to other parts of the agriculture industry (including clothing, animal feed, energy and industrial product). Some industry players engage in dairy operations, land transformation activities and the development of food ingredients using gene-editing technology. The industry encompasses production activities related to traditional farming of crops (like corn, soybean, wheat and cotton), and livestock and poultry products (including meat, dairy and eggs). The products are mostly sold at grocery stores or exported overseas. These are also used as feedstock for other industries. For example, cotton is used in the clothing industry and corn is used in the ethanol industry.
What's Shaping the Future of Agriculture - Operations Industry
Growing Organic Demand: The industry has been benefiting from an organic movement prompted by consumers’ increasing demand for healthier food. Agriculturists are adopting organic production techniques, and curtailing the use of chemicals and pesticides. Innovations in food processing, improved grain-handling techniques, larger storage spaces and strong emerging market demand are conducive to the industry’s growth. Healthy eating habits are likely to accelerate the purchase and consumption of alternative proteins. Focus on nourishment and wellness is pushing microbiome solutions to the forefront. The companies have been investing in acquisitions and joint ventures to build top-notch ingredients and solutions for meeting the demand for healthy products.
Agricultural Export Projections: Per the U.S. Department of Agriculture, agricultural export projections for fiscal 2023 (ending Sep 30) of $193.5 billion suggest a decline of $2.5 billion from the fiscal 2022 forecast of a record $196 billion. Declines in cotton, beef and sorghum exports are the key factors resulting in lower export projections. Cotton exports are expected to decline due to drought-slashed exportable volumes. Beef exports are expected to be impacted by tight U.S. supplies. Sorghum exports are likely to decline on sharply lower exportable supplies. Wheat exports are expected to be affected by lower unit values. Meanwhile, higher exports of soybeans and horticultural products are likely to aid. Soybean exports are forecast to be up $2.2 billion to a record $35.2 billion on higher prices. Horticulture exports of $39.5 billion are expected to increase $400 million on higher exports of fresh and processed fruits and vegetables, offset by declines in tree nut exports.
Elevated Costs: Industry participants have been witnessing higher costs due to rising raw material, freight and logistics costs, including constraints in labor and trucking resources, leading to higher lead times for deliveries. Supply-chain concerns and commodity cost pressures have been affecting the profitability of agricultural companies for a while. Also, the conflict in Ukraine has been creating headwinds. The companies have resorted to solid pricing strategies to counter the rising raw material costs. The participants are looking to counter the global supply-chain challenges by forming partnerships and distribution strategies. Despite the pricing strategies, supply-chain challenges and cost inflation are expected to continue hurting margins in the near term.
Companies in the industry continue to face raised SG&A expenses due to higher performance-related compensation, project-related costs, commissions and variable compensation. The companies are also witnessing elevated costs for investments in technology and innovation to stay ahead of the race. Continued deleverage in SG&A expenses might continue to have a bearing on the profitability of companies.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Agriculture – Operations industry is a 14-stock group within the broader Zacks Consumer Staples sector. The industry currently carries a Zacks Industry Rank #216, which places it at the bottom 14% 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 dull 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 bottom 50% of the Zacks-ranked industries resulted from a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry vs. Broader Market
The Zacks Agriculture – Operations industry has outperformed the S&P 500 and the Zacks Consumer Staples sector in a year.
The stocks in the industry have collectively gained 19.2% in a year against declines of 17.2% for the Zacks S&P 500 composite and 8.5% for the sector.
One-Year Price Performance
Agriculture - Operations Industry's Valuation
On the basis of the forward 12-month price-to-earnings (P/E) ratio, which is commonly used for valuing Consumer Staples stocks, the industry is currently trading at 14.1X compared with the S&P 500’s 15.74X and the sector’s 17.75X.
Over the last five years, the industry has traded as high as 17.73X, as low as 10.24X and at the median of 14.32X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
4 Agriculture Operations Stocks to Keep an Eye on
None of the stocks in the Zacks Agriculture – Operations universe currently sports a Zacks Rank #1 (Strong Buy) or #2 (Buy). Here, we suggest four stocks with a Zacks Rank #3 (Hold) from the same industry, which investors may hold on to. You can see the complete list of today’s Zacks #1 Rank stocks here.
Archer Daniels: The Chicago, IL-based agricultural product company’s leadership in key global trends like flexitarian diets, nutrition and sustainable materials has been a key contributor to its momentum. Its focus on making investments in assets and technological capabilities to serve customers efficiently is likely to be a significant growth driver. Solid demand, improved productivity and product innovations have been driving growth. Its Readiness program, positive cash flow and solid performance at the Nutrition unit have been aiding the results. The company has been progressing well on its three strategic pillars — optimize, drive and growth.
Management is optimistic about the company’s 2022 results and envisions another year of strong earnings growth. It is poised to benefit from the robust performance of its Nutrition segment, owing to significant gains in the Human and Animal Nutrition units. The Zacks Consensus Estimate for Archer Daniels’ 2022 earnings has moved up by a penny in the past 30 days to $6.84 per share. The Zacks Consensus Estimate for ADM’s 2022 sales and earnings suggests growth of 15.6% and 31.8%, respectively, from the year-ago period’s reported figures. It has reported an earnings surprise of 20.1%, on average, in the trailing four quarters. The company has rallied 33% in the past year.
Price and Consensus: ADM
Corteva: The Wilmington, DE-based pure-play agriculture company is poised to drive above-market growth through its industry-leading product pipeline, and rigorous approach to innovation and operating discipline. It is poised to accelerate its pace of innovation and existing leadership position in the high-value sector to meet the increasing market demand for naturally derived products through three new collaboration agreements. Strong price execution in seed, supply-chain flexibility and solid market demand for its balanced and differentiated new product portfolios are driving CTVA’s performance.
The Zacks Consensus Estimate for Corteva’s 2022 earnings has moved up by a penny in the past 30 days. The Zacks Consensus Estimate for its 2022 sales and earnings suggests growth of 10.5% and 20.5%, respectively, from the year-ago period’s reported figures. The company has reported an earnings surprise of 22.2%, on average, in the trailing four quarters. The CTVA stock has rallied 33.6% in the past year.
Price and Consensus: CTVA
Adecoagro: The Luxembourg-based agro-industrial company engages in farming crops and other agricultural products, dairy operations, sugar, ethanol and energy production, and land transformation activities in South America. The company benefits from high asset flexibility, which gives it a competitive advantage in the current uncertain market outlook. Its flexibility was reflected by its ability to increase the mix of anhydrous ethanol to benefit from its high prices and recovering demand. The company’s Farming & Land Transformation businesses have been benefiting from the consolidation of the five-year plan investments made in Crops, Rice and Dairy businesses, along with its focus on efficiencies.
The company’s shares have lost 13.2% in the past year. The Zacks Consensus Estimate for AGRO’s 2022 earnings has moved up 9.6% in the past 30 days. The Zacks Consensus Estimate for the company’s 2022 sales suggests growth of 10.2% from the year-ago period’s reported figure.
Price and Consensus: AGRO
Limoneira: The Santa Paula, CA-based Limoneira is a diversified citrus growing, packing, selling and marketing company with related agribusiness activities and real estate development operations. The company’s strategic approach toward fresh utilization has been resulting in robust sales of fresh lemons by its sales and marketing team. The company’s avocado segment’s sales are poised to benefit from robust pricing, which has almost doubled year over year. LMNR is on track with its new strategic plan to expand One World of Citrus, increase its avocado plantings and strategically sell certain assets to dramatically increase cash flow in the near term.
The company’s shares have declined 20.1% in the past year. The Zacks Consensus Estimate for LMNR’s fiscal 2022 loss estimate has narrowed by 7 cents in the past 30 days. The Zacks Consensus Estimate for its fiscal 2022 sales suggests growth of 5.4% from the year-ago period’s reported figure. The company’s loss estimate for fiscal 2022 of 4 cents has narrowed significantly from the loss of 22 cents reported in the prior year. LMNR has reported an earnings surprise of 13.3%, on average, in the trailing four quarters.
Price and Consensus: LMNR