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2 Agriculture - Products Stocks to Watch Despite Industry Concerns
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The Zacks Agriculture - Products industry has been bearing the brunt of lower commodity prices. High input costs and labor shortages also aggravated the pressure. Nevertheless, increasing consumer awareness regarding food ingredients and the preference for healthier alternatives will support the industry. Alternative agricultural technologies like hydroponics and vertical farming are expected to be other key catalysts, given their inherent benefits.
Companies like The Andersons (ANDE - Free Report) and GrowGeneration (GRWG - Free Report) are poised to gain from strong end-market demand and their ongoing strategic growth initiatives.
Industry Description
The Zacks Agriculture – Products industry comprises companies that are either involved in storing agricultural commodities, distributing ingredients to others or engaged in farming crops, livestock and poultry products. Some are engaged in purchasing, storing, transporting, processing and selling agricultural commodities or products derived from the same. They operate grain elevators, wherein income is generated from commodities bought and sold using these elevators or held as inventory. Some companies provide nutrients, advanced indoor and greenhouse lighting, environmental control systems and accessories for hydroponic gardening, the method of growing plants using mineral nutrient solutions in a water solvent instead of soil. A few players offer innovative, plant-based health and wellness products. Companies producing lumber also fall under this industry.
Trends Shaping the Future of the Agriculture - Products Industry
Low Commodity Prices, High Costs Act as Woes: Agricultural commodity prices are being weighed down by ample supply. Players in the industry are facing rising labor, packaging and distribution costs, among other expenses. The industry continues to navigate a tight labor market with a spike in wages and higher distribution costs. They have been making efforts to bolster their financial conditions, conserve cash and improve profitability by implementing pricing and cost-reduction actions, which are likely to help sustain margins in the future.
Solid Demand to Propel Industry Growth: The demand for food is directly influenced by population, demographic shifts and income growth. Per the United Nations, the global population is expected to grow to 8.6 billion in 2030 and 9.8 billion in 2050. This will drive a 50% increase in global food demand. Consumers are now focused on healthier food alternatives. To capitalize on this, several agricultural and food-based companies are investing in innovation and augmenting their product and market strategies to bring new quality and healthy food ingredients to the market. Ongoing improvements in grain-handling techniques and investment in larger storage spaces will likely support the industry. Given that food remains an essential commodity regardless of the condition of the economy, the industry benefits from stable earnings across economic cycles.
Hydroponics & Cannabis are Key Catalysts: Hydroponics is gaining popularity as it gives growers control over nutrient delivery, light, air, water, humidity, pests and temperature in an indoor setting. This method enables faster crop growth, with higher yields than traditional soil-based cultivation. It is being utilized in new and emerging industries, including the cultivation of cannabis and hemp. Vertical farms producing organic fruits and vegetables also utilize hydroponics due to the shortage of farmland and environmental vulnerabilities. Vertical farming is the latest agricultural technology, wherein shelves and artificial lighting systems are used to grow produce, thereby minimizing land and water consumption. The legal cannabis market in the United States is projected to grow at a steady pace each year, driven by legalization and the increased usage in medical applications.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Agriculture - Products industry is part of the broader Zacks Basic Materials sector. The industry currently carries a Zacks Industry Rank #210, which places it in the bottom 15% of the 246 Zacks industries.
The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates bleak prospects in the near term. 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.
Before we present a few Agriculture - Products stocks that investors can keep an eye on, it is worth looking at the industry’s stock-market performance and valuation picture.
Industry Versus Broader Market
The Zacks Agriculture – Products industry has underperformed its sector and lagged the Zacks S&P 500 composite over the past 12 months. Stocks in this industry have moved down 9.4% in the past 12 months compared with the Basic Materials sector’s 2.6% rise. The S&P 500 has gained 18.4% in the same time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month EV/EBITDA ratio, a commonly used multiple for valuing Agriculture - Products stocks, we see that the industry is currently trading at 6.83X compared with the S&P 500’s 18.50X. The Basic Materials sector’s trailing 12-month EV/EBITDA is 14.16X. This is shown in the charts below.
Enterprise Value/EBITDA (EV/EBITDA) Ratio TTM
Enterprise Value/EBITDA (EV/EBITDA) Ratio TTM
Over the last five years, the industry traded as high as 10.19X and as low as 3.76X, with the median being 5.72X.
2 Agriculture - Products Stocks to Keep an Eye on
GrowGeneration: The company delivered sequential improvements in gross margin and adjusted EBITDA, reflecting its cost control and margin improvement initiatives. The company is focusing on building a leaner, more profitable, product-driven organization focused on business-to-business customers. Proprietary brand sales have grown to nearly 32% of total Cultivation and Gardening revenues, underscoring the strength and momentum of its brands. The company has set a target to take this to 35% by year end. The June acquisition of Viagrow enhanced its retail presence and is expected to be accretive to margins, and is also anticipated to support its goal of sustaining 30%+ gross margins through private-label expansion. GRWG also recently expanded its international reach with distribution partnerships in Europe and Costa Rica. As legalization advances, these markets represent some of the most promising cannabis cultivation markets in the world. Domestically, it announced a strategic partnership with Arett Sales to distribute its brands across 32 states. With streamlined operations, no debt and a strong balance sheet, GrowGeneration is well-positioned for profitable growth. GRWG shares have gained 61.2% in the past three months.
Greenwood Village, CO-based GrowGeneration operates retail hydroponic and organic gardening stores. The Zacks Consensus Estimate for the company’s fiscal 2025 bottom line is pegged at a loss of 41 cents per share, indicating a narrower loss from the 66 cents incurred in fiscal 2024. The estimate has moved up from an expected loss of 45 cents expected 60 days ago. GRWG currently carries a Zacks Rank #2 (Buy).
Andersons: The company recently acquired the remaining 49.9% ownership interest in TAMH from a subsidiary of Marathon Petroleum (“MPC”), gaining full ownership. TAMH, which operates four ethanol plants with total annual production capacity of 500 million gallons, has been renamed The Andersons Renewables, LLC. This is in sync with the company’s efforts to grow its presence in the ethanol industry, and also expected to be immediately accretive to its earnings per share. ANDE continues to generate strong cash flows, enabling it to fund its growth projects. Construction continues on its Houston port project, which was initiated to improve the efficiency and capacity of the grain operations and add export capacity for U.S. soybean meal. The company is well-positioned for expected large corn harvest and wheat opportunities. ANDE shares have gained 5% in the past three months.
Maumee, OH-based Andersons operates in agribusiness and renewables sectors. The Zacks Consensus Estimate for ANDE’s earnings for fiscal 2025 has moved remained unchanged in the past 60 days. Andersons currently carries a Zacks Rank #3 (Hold).
Price & Consensus: ANDE
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2 Agriculture - Products Stocks to Watch Despite Industry Concerns
The Zacks Agriculture - Products industry has been bearing the brunt of lower commodity prices. High input costs and labor shortages also aggravated the pressure. Nevertheless, increasing consumer awareness regarding food ingredients and the preference for healthier alternatives will support the industry. Alternative agricultural technologies like hydroponics and vertical farming are expected to be other key catalysts, given their inherent benefits.
Companies like The Andersons (ANDE - Free Report) and GrowGeneration (GRWG - Free Report) are poised to gain from strong end-market demand and their ongoing strategic growth initiatives.
Industry Description
The Zacks Agriculture – Products industry comprises companies that are either involved in storing agricultural commodities, distributing ingredients to others or engaged in farming crops, livestock and poultry products. Some are engaged in purchasing, storing, transporting, processing and selling agricultural commodities or products derived from the same. They operate grain elevators, wherein income is generated from commodities bought and sold using these elevators or held as inventory. Some companies provide nutrients, advanced indoor and greenhouse lighting, environmental control systems and accessories for hydroponic gardening, the method of growing plants using mineral nutrient solutions in a water solvent instead of soil. A few players offer innovative, plant-based health and wellness products. Companies producing lumber also fall under this industry.
Trends Shaping the Future of the Agriculture - Products Industry
Low Commodity Prices, High Costs Act as Woes: Agricultural commodity prices are being weighed down by ample supply. Players in the industry are facing rising labor, packaging and distribution costs, among other expenses. The industry continues to navigate a tight labor market with a spike in wages and higher distribution costs. They have been making efforts to bolster their financial conditions, conserve cash and improve profitability by implementing pricing and cost-reduction actions, which are likely to help sustain margins in the future.
Solid Demand to Propel Industry Growth: The demand for food is directly influenced by population, demographic shifts and income growth. Per the United Nations, the global population is expected to grow to 8.6 billion in 2030 and 9.8 billion in 2050. This will drive a 50% increase in global food demand. Consumers are now focused on healthier food alternatives. To capitalize on this, several agricultural and food-based companies are investing in innovation and augmenting their product and market strategies to bring new quality and healthy food ingredients to the market. Ongoing improvements in grain-handling techniques and investment in larger storage spaces will likely support the industry. Given that food remains an essential commodity regardless of the condition of the economy, the industry benefits from stable earnings across economic cycles.
Hydroponics & Cannabis are Key Catalysts: Hydroponics is gaining popularity as it gives growers control over nutrient delivery, light, air, water, humidity, pests and temperature in an indoor setting. This method enables faster crop growth, with higher yields than traditional soil-based cultivation. It is being utilized in new and emerging industries, including the cultivation of cannabis and hemp. Vertical farms producing organic fruits and vegetables also utilize hydroponics due to the shortage of farmland and environmental vulnerabilities. Vertical farming is the latest agricultural technology, wherein shelves and artificial lighting systems are used to grow produce, thereby minimizing land and water consumption. The legal cannabis market in the United States is projected to grow at a steady pace each year, driven by legalization and the increased usage in medical applications.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Agriculture - Products industry is part of the broader Zacks Basic Materials sector. The industry currently carries a Zacks Industry Rank #210, which places it in the bottom 15% of the 246 Zacks industries.
The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates bleak prospects in the near term. 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.
Before we present a few Agriculture - Products stocks that investors can keep an eye on, it is worth looking at the industry’s stock-market performance and valuation picture.
Industry Versus Broader Market
The Zacks Agriculture – Products industry has underperformed its sector and lagged the Zacks S&P 500 composite over the past 12 months. Stocks in this industry have moved down 9.4% in the past 12 months compared with the Basic Materials sector’s 2.6% rise. The S&P 500 has gained 18.4% in the same time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month EV/EBITDA ratio, a commonly used multiple for valuing Agriculture - Products stocks, we see that the industry is currently trading at 6.83X compared with the S&P 500’s 18.50X. The Basic Materials sector’s trailing 12-month EV/EBITDA is 14.16X. This is shown in the charts below.
Enterprise Value/EBITDA (EV/EBITDA) Ratio TTM
Enterprise Value/EBITDA (EV/EBITDA) Ratio TTM
Over the last five years, the industry traded as high as 10.19X and as low as 3.76X, with the median being 5.72X.
2 Agriculture - Products Stocks to Keep an Eye on
GrowGeneration: The company delivered sequential improvements in gross margin and adjusted EBITDA, reflecting its cost control and margin improvement initiatives. The company is focusing on building a leaner, more profitable, product-driven organization focused on business-to-business customers. Proprietary brand sales have grown to nearly 32% of total Cultivation and Gardening revenues, underscoring the strength and momentum of its brands. The company has set a target to take this to 35% by year end. The June acquisition of Viagrow enhanced its retail presence and is expected to be accretive to margins, and is also anticipated to support its goal of sustaining 30%+ gross margins through private-label expansion. GRWG also recently expanded its international reach with distribution partnerships in Europe and Costa Rica. As legalization advances, these markets represent some of the most promising cannabis cultivation markets in the world. Domestically, it announced a strategic partnership with Arett Sales to distribute its brands across 32 states. With streamlined operations, no debt and a strong balance sheet, GrowGeneration is well-positioned for profitable growth. GRWG shares have gained 61.2% in the past three months.
Greenwood Village, CO-based GrowGeneration operates retail hydroponic and organic gardening stores. The Zacks Consensus Estimate for the company’s fiscal 2025 bottom line is pegged at a loss of 41 cents per share, indicating a narrower loss from the 66 cents incurred in fiscal 2024. The estimate has moved up from an expected loss of 45 cents expected 60 days ago. GRWG currently carries a Zacks Rank #2 (Buy).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price & Consensus: GRWG
Andersons: The company recently acquired the remaining 49.9% ownership interest in TAMH from a subsidiary of Marathon Petroleum (“MPC”), gaining full ownership. TAMH, which operates four ethanol plants with total annual production capacity of 500 million gallons, has been renamed The Andersons Renewables, LLC. This is in sync with the company’s efforts to grow its presence in the ethanol industry, and also expected to be immediately accretive to its earnings per share. ANDE continues to generate strong cash flows, enabling it to fund its growth projects. Construction continues on its Houston port project, which was initiated to improve the efficiency and capacity of the grain operations and add export capacity for U.S. soybean meal. The company is well-positioned for expected large corn harvest and wheat opportunities. ANDE shares have gained 5% in the past three months.
Maumee, OH-based Andersons operates in agribusiness and renewables sectors. The Zacks Consensus Estimate for ANDE’s earnings for fiscal 2025 has moved remained unchanged in the past 60 days. Andersons currently carries a Zacks Rank #3 (Hold).
Price & Consensus: ANDE