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4 Food Stocks Poised to Gain on Prospering Industry Trends
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Players in the Zacks Food-Miscellaneous industry have been benefiting from solid demand stemming from elevated at-home consumption. Industry participants’ consistent focus on product innovation, efforts to boost online offerings and portfolio refinement to cater to consumers’ altering tastes and preferences are tailwinds.
That said, food companies have been encountering rising costs of inputs and logistics expenses, which are denting profitability. Robust pricing initiatives have been helping food companies such as The Kraft Heinz Company (KHC - Free Report) , Lamb Weston Holdings, Inc. (LW - Free Report) , Celsius Holdings, Inc. (CELH - Free Report) and Post Holdings, Inc. (POST - Free Report) to counter cost inflation.
About the Industry
The Zacks Food-Miscellaneous industry consists of companies that manufacture and sell a wide range of food and packaged food items, such as cereals, flour, sauces, bakery items, spices and condiments, natural and organic food items and frozen products. Some companies also provide comfort food items, such as chocolates and ready-to-serve meals, soups and snacks. A few players are engaged in providing pet food products and supplements. Several food companies also offer organic and natural products. Companies operating in this space sell their products mostly through wholesalers, distributors, large retail organizations, grocery chains, mass merchandisers, drug stores and e-commerce service providers. Some also cater to foodservice channels, including restaurants, cafes and hotels. Others offer services to schools, hospitals and industry caterers.
Major Trends Shaping the Future of the Food Industry
Healthy At-Home Consumption Boosts Demand: Players in the food industry have been benefiting from favorable demand stemming from solid at-home consumption. As several Americans have cultivated cooking and baking at home as a new habit, at-home demand is likely to remain sturdy compared with the pre-pandemic levels. Also, recovering demand for away-from-home food is an upside. These factors have been fueling demand for food-related items, especially packaged food and snacks, ready-to-cook meals as well as confectionery and bakery items. Also, the demand for organic and fresh food products has been high. Apart from this, online sales have been enhancing the revenues of several food companies. To continue building on the sales momentum, industry participants are bolstering operations at fulfillment centers.
Refining Portfolio to Suit Consumer Needs: Food companies have been taking to product upgrades and innovations frequently to keep pace with consumers’ changing tastes and preferences. Several miscellaneous food companies are enriching their portfolio by adding more plant-based and natural brands with growth in demand for organic and natural food offerings. Also, the industry players have been investing in capacity expansions and technology upgrades to meet consumers’ demands with improved operational efficiency. Additionally, companies often engage in portfolio refinement through strategic buyouts and the divestiture of non-core elements.
Favorable Pricing Endeavors: Food companies have resorted to effective pricing actions to counter industry-wide cost inflation. Players are raising the prices, which in turn is boosting the margins and profitability of several industry players. Amid cost inflation, companies are expected to continue gaining from pricing actions that are likely to aid sales and overall performance in the quarters ahead.
High Input Costs a Concern: Despite showing signs of cooling, inflationary pressure remains high in the United States with the rise in fuel prices. Companies in the food space are also bearing the brunt of the Russia-Ukraine conflict that has exposed them to challenges accessing several food products including oilseeds. Several industry players, in their last earnings call, stated that they anticipate witnessing high input costs in the near term. Apart from this, supply-chain issues have increased warehouse, packaging and other logistics expenses. Such a rise in expenses and a tough labor market put pressure on margins.
Zacks Industry Rank Indicates Robust Prospects
The Zacks Food-Miscellaneous industry is housed within the broader Zacks Consumer Staples sector. The industry currently carries a Zacks Industry Rank #105, which places it in the top 42% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is 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 outperform the bottom 50% by a factor of more than 2 to 1.
Let’s take a look at the industry’s performance and current valuation.
Industry vs. Broader Market
The Zacks Food-Miscellaneous industry has underperformed the S&P 500 and the broader Zacks Consumer Staples sector over the past year.
The industry has dipped 5.3% over this period compared with the S&P 500’s growth of 17.6%. Meanwhile, the broader sector has declined 0.3% in the said time frame.
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 consumer staples stocks, the industry is currently trading at 14.54X compared with the S&P 500’s 18.08X and the sector’s 16.98X.
Over the past five years, the industry has traded as high as 20.56X and as low as 14.54X, with the median being at 18.01X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years) Versus S&P 500
Price-to-Earnings Ratio (Past 5 Years) Versus Sector
4 Food Stocks to Keep a Close Eye on
Celsius Holdings: The company specializes in commercializing healthier, nutritional functional foods, beverages and dietary supplements. Celsius has been benefiting from a strong demand environment for its products, flavor innovations, growth initiatives and cost-saving actions. The consensus mark for its current fiscal-year sales and earnings per share (EPS) suggests growth of 88.9% and 170.3%, respectively, from the year-ago period reported figure.
The Zacks Consensus Estimate for CELH’s current financial-year EPS has increased 33.1% in the past 60 days. Shares of this Zacks Rank #1 (Strong Buy) company have surged 79% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: CELH
The Kraft Heinz Company: Kraft Heinz is one of the largest consumer packaged food and beverage companies in North America. The company has been benefiting from strength in the foodservice, emerging markets and U.S. Retail Grow platforms. As part of its next transformation phase, management unveiled AGILE@SCALE in February 2022. The strategy has been helping it enhance its agile expertise and capabilities via partnerships with technology giants and cutting-edge innovators. The consensus mark for KHC’s current fiscal year sales and EPS suggests growth of 2.2% and 4%, respectively, from the year-ago period reported figures.
The Zacks Consensus Estimate for Kraft Heinz’s current financial-year EPS has remained stable over the past 60 days. Shares of this Zacks Rank #2 (Buy) company have inched down 2.1% in the past year.
Price and Consensus: KHC
Lamb Weston: The manufacturer of value-added frozen potato products has been gaining from broad-based growth, with strong sales and operational performance in its core business segments. Lamb Weston’s efforts to counter input cost inflation through effective pricing actions have been proving beneficial. It has also been making investments to boost supply-chain, commercial and information technology operations. The consensus mark for current fiscal-year sales and EPS suggests growth of 27.4% and 12.6%, respectively, from their respective year-ago period reported figures.
The Zacks Consensus Estimate for Lamb Weston’s current financial-year EPS has increased 3.9% in the past 60 days. Shares of this Zacks Rank #2 company have rallied 18.2% in the past year.
Price and Consensus: LW
Post Holdings: The company is involved in the production of refrigerated, foodservice, food ingredient and convenient nutrition product categories. This consumer-packaged goods company has been experiencing substantial growth, particularly fueled by the impressive performance of its Post Consumer Brands, Weetabix and Foodservice segments. It is also making expansions through acquisitions to diversify its business. The consensus mark for POST’s current fiscal-year sales and EPS suggests growth of 13.2% and 189.3%, respectively, from their respective year-ago period reported figures.
The Zacks Consensus Estimate for Post Holdings’ current financial-year EPS has increased 6.6% in the past 60 days. Shares of this Zacks Rank #2 company have moved up 2.3% in the past year.
Price and Consensus: POST
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4 Food Stocks Poised to Gain on Prospering Industry Trends
Players in the Zacks Food-Miscellaneous industry have been benefiting from solid demand stemming from elevated at-home consumption. Industry participants’ consistent focus on product innovation, efforts to boost online offerings and portfolio refinement to cater to consumers’ altering tastes and preferences are tailwinds.
That said, food companies have been encountering rising costs of inputs and logistics expenses, which are denting profitability. Robust pricing initiatives have been helping food companies such as The Kraft Heinz Company (KHC - Free Report) , Lamb Weston Holdings, Inc. (LW - Free Report) , Celsius Holdings, Inc. (CELH - Free Report) and Post Holdings, Inc. (POST - Free Report) to counter cost inflation.
About the Industry
The Zacks Food-Miscellaneous industry consists of companies that manufacture and sell a wide range of food and packaged food items, such as cereals, flour, sauces, bakery items, spices and condiments, natural and organic food items and frozen products. Some companies also provide comfort food items, such as chocolates and ready-to-serve meals, soups and snacks. A few players are engaged in providing pet food products and supplements. Several food companies also offer organic and natural products. Companies operating in this space sell their products mostly through wholesalers, distributors, large retail organizations, grocery chains, mass merchandisers, drug stores and e-commerce service providers. Some also cater to foodservice channels, including restaurants, cafes and hotels. Others offer services to schools, hospitals and industry caterers.
Major Trends Shaping the Future of the Food Industry
Healthy At-Home Consumption Boosts Demand: Players in the food industry have been benefiting from favorable demand stemming from solid at-home consumption. As several Americans have cultivated cooking and baking at home as a new habit, at-home demand is likely to remain sturdy compared with the pre-pandemic levels. Also, recovering demand for away-from-home food is an upside. These factors have been fueling demand for food-related items, especially packaged food and snacks, ready-to-cook meals as well as confectionery and bakery items. Also, the demand for organic and fresh food products has been high. Apart from this, online sales have been enhancing the revenues of several food companies. To continue building on the sales momentum, industry participants are bolstering operations at fulfillment centers.
Refining Portfolio to Suit Consumer Needs: Food companies have been taking to product upgrades and innovations frequently to keep pace with consumers’ changing tastes and preferences. Several miscellaneous food companies are enriching their portfolio by adding more plant-based and natural brands with growth in demand for organic and natural food offerings. Also, the industry players have been investing in capacity expansions and technology upgrades to meet consumers’ demands with improved operational efficiency. Additionally, companies often engage in portfolio refinement through strategic buyouts and the divestiture of non-core elements.
Favorable Pricing Endeavors: Food companies have resorted to effective pricing actions to counter industry-wide cost inflation. Players are raising the prices, which in turn is boosting the margins and profitability of several industry players. Amid cost inflation, companies are expected to continue gaining from pricing actions that are likely to aid sales and overall performance in the quarters ahead.
High Input Costs a Concern: Despite showing signs of cooling, inflationary pressure remains high in the United States with the rise in fuel prices. Companies in the food space are also bearing the brunt of the Russia-Ukraine conflict that has exposed them to challenges accessing several food products including oilseeds. Several industry players, in their last earnings call, stated that they anticipate witnessing high input costs in the near term. Apart from this, supply-chain issues have increased warehouse, packaging and other logistics expenses. Such a rise in expenses and a tough labor market put pressure on margins.
Zacks Industry Rank Indicates Robust Prospects
The Zacks Food-Miscellaneous industry is housed within the broader Zacks Consumer Staples sector. The industry currently carries a Zacks Industry Rank #105, which places it in the top 42% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is 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 outperform the bottom 50% by a factor of more than 2 to 1.
Let’s take a look at the industry’s performance and current valuation.
Industry vs. Broader Market
The Zacks Food-Miscellaneous industry has underperformed the S&P 500 and the broader Zacks Consumer Staples sector over the past year.
The industry has dipped 5.3% over this period compared with the S&P 500’s growth of 17.6%. Meanwhile, the broader sector has declined 0.3% in the said time frame.
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 consumer staples stocks, the industry is currently trading at 14.54X compared with the S&P 500’s 18.08X and the sector’s 16.98X.
Over the past five years, the industry has traded as high as 20.56X and as low as 14.54X, with the median being at 18.01X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years) Versus S&P 500
Price-to-Earnings Ratio (Past 5 Years) Versus Sector
4 Food Stocks to Keep a Close Eye on
Celsius Holdings: The company specializes in commercializing healthier, nutritional functional foods, beverages and dietary supplements. Celsius has been benefiting from a strong demand environment for its products, flavor innovations, growth initiatives and cost-saving actions. The consensus mark for its current fiscal-year sales and earnings per share (EPS) suggests growth of 88.9% and 170.3%, respectively, from the year-ago period reported figure.
The Zacks Consensus Estimate for CELH’s current financial-year EPS has increased 33.1% in the past 60 days. Shares of this Zacks Rank #1 (Strong Buy) company have surged 79% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: CELH
The Kraft Heinz Company: Kraft Heinz is one of the largest consumer packaged food and beverage companies in North America. The company has been benefiting from strength in the foodservice, emerging markets and U.S. Retail Grow platforms. As part of its next transformation phase, management unveiled AGILE@SCALE in February 2022. The strategy has been helping it enhance its agile expertise and capabilities via partnerships with technology giants and cutting-edge innovators. The consensus mark for KHC’s current fiscal year sales and EPS suggests growth of 2.2% and 4%, respectively, from the year-ago period reported figures.
The Zacks Consensus Estimate for Kraft Heinz’s current financial-year EPS has remained stable over the past 60 days. Shares of this Zacks Rank #2 (Buy) company have inched down 2.1% in the past year.
Price and Consensus: KHC
Lamb Weston: The manufacturer of value-added frozen potato products has been gaining from broad-based growth, with strong sales and operational performance in its core business segments. Lamb Weston’s efforts to counter input cost inflation through effective pricing actions have been proving beneficial. It has also been making investments to boost supply-chain, commercial and information technology operations. The consensus mark for current fiscal-year sales and EPS suggests growth of 27.4% and 12.6%, respectively, from their respective year-ago period reported figures.
The Zacks Consensus Estimate for Lamb Weston’s current financial-year EPS has increased 3.9% in the past 60 days. Shares of this Zacks Rank #2 company have rallied 18.2% in the past year.
Price and Consensus: LW
Post Holdings: The company is involved in the production of refrigerated, foodservice, food ingredient and convenient nutrition product categories. This consumer-packaged goods company has been experiencing substantial growth, particularly fueled by the impressive performance of its Post Consumer Brands, Weetabix and Foodservice segments. It is also making expansions through acquisitions to diversify its business. The consensus mark for POST’s current fiscal-year sales and EPS suggests growth of 13.2% and 189.3%, respectively, from their respective year-ago period reported figures.
The Zacks Consensus Estimate for Post Holdings’ current financial-year EPS has increased 6.6% in the past 60 days. Shares of this Zacks Rank #2 company have moved up 2.3% in the past year.
Price and Consensus: POST