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3 Natural Food Stocks to Watch Amid Robust Industry Trends
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Demand for nutritious and healthy offerings has been rising as maintaining good health is becoming a priority for consumers. Such a trend is working well for companies in the Zacks Natural Foods Products industry. Industry participants are boosting their portfolio strength through effective innovations and acquisitions. A few players are also making increased investments toward augmenting digital capacities.
Natural food companies are adopting strategic pricing to counter rising cost inflation. Upsides like these are likely to work well for companies like Performance Food Group Company (PFGC - Free Report) , Sprouts Farmers Market, Inc. (SFM - Free Report) and SpartanNash Company (SPTN - Free Report) .
About the Industry
The Zacks Natural Foods Products industry comprises companies that manufacture and sell a wide range of organic and natural fruits, vegetables, dairy products, flour, bakery items, meat and seafood as well as spices and condiments. They also offer packaged ready-to-eat meals, snacks, cereals and frozen food. Some of these companies offer comfort food items like ice cream and soups. A few players provide personal care products as well as health supplements. The firms operating in this space sell their products mostly through wholesalers, distributors, large retail organizations, grocery chains, mass merchandisers, drug stores as well as e-commerce service providers. Some also cater to food service channels, including restaurants, cafes and hotels. Others also offer services to schools, hospitals and industry caterers. Some of the players operate through independent retail stores.
Major Trends Shaping the Future of the Natural Food Industry
Rising Inclination Toward Healthy Food Options: The pandemic has made society aware of the importance of consuming healthy and nutritious food by cooking at home. As a result, the demand for organic and fresh food products has been high, acting as an upside for players in the natural food products industry. Although outdoor dining is back on the scene, many individuals are likely to continue the habit of consuming natural and organic food at home for maintaining good health. Such trends are likely to keep supporting the demand for fresh, natural and organic food products. Companies in the natural food products arena are also witnessing a revival in their foodservice business channels as demand for restaurants and cafes gathers pace. Industry experts believe that even while dining outdoors, consumers are likely to opt for healthier food options. This is likely to lead restaurants and cafes to add healthier and more natural ingredients-based food to their menu.
Focus on Boosting Portfolio & Market Reach: Companies have been focused on expanding their portfolio and market presence through strategic partnerships, acquisitions and store expansions. Players in this space have also been focusing on research and development to introduce products that can be cooked easily at home and develop formulations that are low on preservatives, without compromising on flavors. Plant-based, gluten-free and keto-friendly ingredients-based food products are gaining prominence. Companies have been ramping up production capacity to meet the rising demand for fresh and organic products. Several companies in the natural food industry have been benefiting from higher e-commerce sales owing to consumers’ growing inclination toward online shopping. As a result, companies are investing more in digital transformation, including online product offerings, delivery systems and marketing.
Escalated Cost Concerns: Commodity cost inflation is a concern for a number of players in the natural food industry. Prices of commodities like cooking oil, vegetables, dairy items and animal feed have been rising. Additionally, companies have been witnessing high costs associated with operations amid the pandemic, like increased pay to employees to support healthcare needs, as well as costs related to sanitization and safety measures. Supply-chain hiccups across some markets have also led to higher warehouse, packaging and other logistics expenses. That said, companies have been adopting initiatives to mitigate cost-related challenges. These include streamlining operational structures, optimizing manufacturing capacity and supply networks as well as adopting effective pricing policies.
Zacks Industry Rank Indicates Great Prospects
The Zacks Natural Foods Products industry is housed within the broader Zacks Retail - Wholesale 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 August 2022, the industry’s earnings estimate for 2022 has improved 5.9%.
Given the industry’s robust 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 Natural Foods Products industry has outperformed the broader Zacks Retail – Wholesale sector as well as the Zacks S&P 500 over the past year.
The industry has gained 19.4% over this period in contrast to the broader sector’s decline of 29.4% and the S&P 500’s decrease of 16.4%.
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 13.89X compared with the S&P 500’s 17.81X and the sector’s 21.74X.
Over the past five years, the industry has traded as high as 20.31X and as low as 11.82X, with the median being 16.54X as the chart below shows
Price-to-Earnings Ratio (Past 5 Years)
3 Natural Food Stocks to Keep a Close Eye on
Sprouts Farmers: This Zacks Rank #2 (Buy) company has been gaining from its initiatives focused on product innovation, customer experience and targeted marketing with everyday great pricing and technology. This well-known grocery retailer is steadily expanding its presence in the natural organic space, given the huge demand in the segment. Sprouts Farmers has been strengthening same-day delivery capabilities as well as pickup services across stores. Certainly, SFM’s focus on enriching the omni-channel experience bodes well. The Zacks Consensus Estimate for Sprouts Farmers’ earnings and sales for the current fiscal year suggests growth of 4.6% and 9.5%, respectively, from the figure reported in the year-ago period. The consensus mark for earnings implies a 3.1% jump over the past 30 days. Shares of Sprouts Farmers have rallied 22.3% in a year.
Performance Food Group: The company has been undertaking product innovations and acquisitions to boost market share. The acquisition of Core-Mark is benefiting Performance Food, which is engaged in the distribution and marketing of food and food-related products. Moreover, PFGC’s efficient selling prices amid rising cost inflation have been an upside. Notably, the Zacks Consensus Estimate for Performance Food’s current fiscal year earnings and sales indicates a rise of 43.1% and 14.4%, respectively, from the prior-year reported figures. The consensus mark for earnings implies a 10.7% jump over the past 30 days. Shares of this Zacks Rank #2 company have surged 31.7% in the past year.
Price and Consensus: PFGC
SpartanNash: This Zacks Rank #3 (Hold) company’s shares have increased 29.7% in a year. SpartanNash is benefiting from a focus on its People First culture, achieving operational excellence as well as catering to customer needs. Efficient pricing is also working well for SPTN, which is a food solutions company. The Zacks Consensus Estimate for SpartanNash’s top and bottom lines for the current fiscal year suggests growth of 7.4% and 38.8%, respectively, from the figure reported in the year-ago period. The consensus mark for earnings implies a roughly 4% jump over the past 30 days.
Price and Consensus: SPTN
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3 Natural Food Stocks to Watch Amid Robust Industry Trends
Demand for nutritious and healthy offerings has been rising as maintaining good health is becoming a priority for consumers. Such a trend is working well for companies in the Zacks Natural Foods Products industry. Industry participants are boosting their portfolio strength through effective innovations and acquisitions. A few players are also making increased investments toward augmenting digital capacities.
Natural food companies are adopting strategic pricing to counter rising cost inflation. Upsides like these are likely to work well for companies like Performance Food Group Company (PFGC - Free Report) , Sprouts Farmers Market, Inc. (SFM - Free Report) and SpartanNash Company (SPTN - Free Report) .
About the Industry
The Zacks Natural Foods Products industry comprises companies that manufacture and sell a wide range of organic and natural fruits, vegetables, dairy products, flour, bakery items, meat and seafood as well as spices and condiments. They also offer packaged ready-to-eat meals, snacks, cereals and frozen food. Some of these companies offer comfort food items like ice cream and soups. A few players provide personal care products as well as health supplements. The firms operating in this space sell their products mostly through wholesalers, distributors, large retail organizations, grocery chains, mass merchandisers, drug stores as well as e-commerce service providers. Some also cater to food service channels, including restaurants, cafes and hotels. Others also offer services to schools, hospitals and industry caterers. Some of the players operate through independent retail stores.
Major Trends Shaping the Future of the Natural Food Industry
Rising Inclination Toward Healthy Food Options: The pandemic has made society aware of the importance of consuming healthy and nutritious food by cooking at home. As a result, the demand for organic and fresh food products has been high, acting as an upside for players in the natural food products industry. Although outdoor dining is back on the scene, many individuals are likely to continue the habit of consuming natural and organic food at home for maintaining good health. Such trends are likely to keep supporting the demand for fresh, natural and organic food products. Companies in the natural food products arena are also witnessing a revival in their foodservice business channels as demand for restaurants and cafes gathers pace. Industry experts believe that even while dining outdoors, consumers are likely to opt for healthier food options. This is likely to lead restaurants and cafes to add healthier and more natural ingredients-based food to their menu.
Focus on Boosting Portfolio & Market Reach: Companies have been focused on expanding their portfolio and market presence through strategic partnerships, acquisitions and store expansions. Players in this space have also been focusing on research and development to introduce products that can be cooked easily at home and develop formulations that are low on preservatives, without compromising on flavors. Plant-based, gluten-free and keto-friendly ingredients-based food products are gaining prominence. Companies have been ramping up production capacity to meet the rising demand for fresh and organic products. Several companies in the natural food industry have been benefiting from higher e-commerce sales owing to consumers’ growing inclination toward online shopping. As a result, companies are investing more in digital transformation, including online product offerings, delivery systems and marketing.
Escalated Cost Concerns: Commodity cost inflation is a concern for a number of players in the natural food industry. Prices of commodities like cooking oil, vegetables, dairy items and animal feed have been rising. Additionally, companies have been witnessing high costs associated with operations amid the pandemic, like increased pay to employees to support healthcare needs, as well as costs related to sanitization and safety measures. Supply-chain hiccups across some markets have also led to higher warehouse, packaging and other logistics expenses. That said, companies have been adopting initiatives to mitigate cost-related challenges. These include streamlining operational structures, optimizing manufacturing capacity and supply networks as well as adopting effective pricing policies.
Zacks Industry Rank Indicates Great Prospects
The Zacks Natural Foods Products industry is housed within the broader Zacks Retail - Wholesale 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 August 2022, the industry’s earnings estimate for 2022 has improved 5.9%.
Given the industry’s robust 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 Natural Foods Products industry has outperformed the broader Zacks Retail – Wholesale sector as well as the Zacks S&P 500 over the past year.
The industry has gained 19.4% over this period in contrast to the broader sector’s decline of 29.4% and the S&P 500’s decrease of 16.4%.
One-Year Price Performance
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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 13.89X compared with the S&P 500’s 17.81X and the sector’s 21.74X.
Over the past five years, the industry has traded as high as 20.31X and as low as 11.82X, with the median being 16.54X as the chart below shows
Price-to-Earnings Ratio (Past 5 Years)
3 Natural Food Stocks to Keep a Close Eye on
Sprouts Farmers: This Zacks Rank #2 (Buy) company has been gaining from its initiatives focused on product innovation, customer experience and targeted marketing with everyday great pricing and technology. This well-known grocery retailer is steadily expanding its presence in the natural organic space, given the huge demand in the segment. Sprouts Farmers has been strengthening same-day delivery capabilities as well as pickup services across stores. Certainly, SFM’s focus on enriching the omni-channel experience bodes well. The Zacks Consensus Estimate for Sprouts Farmers’ earnings and sales for the current fiscal year suggests growth of 4.6% and 9.5%, respectively, from the figure reported in the year-ago period. The consensus mark for earnings implies a 3.1% jump over the past 30 days. Shares of Sprouts Farmers have rallied 22.3% in a year.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: SFM
Performance Food Group: The company has been undertaking product innovations and acquisitions to boost market share. The acquisition of Core-Mark is benefiting Performance Food, which is engaged in the distribution and marketing of food and food-related products. Moreover, PFGC’s efficient selling prices amid rising cost inflation have been an upside. Notably, the Zacks Consensus Estimate for Performance Food’s current fiscal year earnings and sales indicates a rise of 43.1% and 14.4%, respectively, from the prior-year reported figures. The consensus mark for earnings implies a 10.7% jump over the past 30 days. Shares of this Zacks Rank #2 company have surged 31.7% in the past year.
Price and Consensus: PFGC
SpartanNash: This Zacks Rank #3 (Hold) company’s shares have increased 29.7% in a year. SpartanNash is benefiting from a focus on its People First culture, achieving operational excellence as well as catering to customer needs. Efficient pricing is also working well for SPTN, which is a food solutions company. The Zacks Consensus Estimate for SpartanNash’s top and bottom lines for the current fiscal year suggests growth of 7.4% and 38.8%, respectively, from the figure reported in the year-ago period. The consensus mark for earnings implies a roughly 4% jump over the past 30 days.
Price and Consensus: SPTN
