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The Zacks Agriculture – Operations industry is poised to benefit from improved consumer demand for healthy products and innovations. Investments in acquisitions, joint ventures and expansion are likely to fortify the prospects of the industry players. Logistic and supply-chain issues, higher input costs, and elevated operational expenses have continued to mar 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 Co., Corteva Inc., Yield10 Bioscience, Inc., Adecoagro S.A. and Calavo Grower.
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 (like clothing, animal feed, energy and industrial products).
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, soybeans, 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 adapting to 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.
Moreover, 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.
Strong Agricultural Export Projections: Per the U.S. Department of Agriculture, agricultural export projections for fiscal 2022 (ending Sep 30) indicate a record number of $191 billion, an increase of $7.5 billion from expectations released in February. The key factors resulting in higher export projections are increases in corn, cotton, and soybeans.
Corn forecast of $19.1 billion indicates a $2.2 million increase due to robust volumes and higher unit values. Cotton exports are expected to be $9.0 billion, up $1.0 billion from the prior forecast on higher unit values. Soybean exports are likely to grow $1.0 billion to $32.3 billion as higher volumes more than offset lower unit values.
Overall grain and feed exports are projected to be $3.8 billion higher to $46.7 billion, with gains across all commodities except rice. Total oilseed and product exports are estimated to be $700 million higher to $44.3 billion. Additionally, increases in the export forecast for livestock, poultry and dairy products are likely to be driven by gains across all major commodities, except pork.
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 entering partnerships and distribution strategies. Despite the pricing strategies, the challenges in supply chains and cost inflation are expected to continue hurting margins in the near term.
Companies in the industry continue to face higher SG&A expenses due to higher performance-related compensation, project-related costs, commissions, and variable compensation. The companies are also witnessing higher 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 13-stock group within the broader Zacks Consumer Staples sector. The industry currently carries a Zacks Industry Rank #96, which places it at the top 38% 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. In the past year, the industry's earnings estimates for the current year have increased 13.8%.
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 11.6% in a year against declines of 8.9% for the Zacks S&P 500 composite and 2.2% for the sector.
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 15.19X compared with the S&P 500's 16.67X and the sector's 19.28X.
Over the last five years, the industry has traded as high as 17.68X, as low as 10.24X and at the median of 14.37X.
5 Agriculture Operations Stocks to Keep an Eye on
None of the stocks in the Zacks Agriculture – Operations universe currently sport a Zacks Rank #1 (Strong Buy). Here, we have mentioned three stocks with a Zacks Rank #2 (Buy). We suggest two more 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. Its Readiness program, positive cash flow and solid performance at the Nutrition unit have been aiding results. The company has been progressing well on its three strategic pillars — optimize, drive and growth.
Management is optimistic about 2022 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 3.3% in the past 30 days to $6.33 per share. The Zacks Consensus Estimate for ADM's 2022 sales and earnings suggests growth of 12.3% and 22%, respectively, from the year-ago period's reported figures. It has reported an earnings surprise of 22.3%, on average, in the trailing four quarters. The company currently carries a Zacks Rank #2. It has rallied 26.9% in the past year.
Yield10 Bioscience: The Zacks Rank #2 agricultural bioscience company is focused on developing technologies to achieve improvements in crop yield to enhance global food security. The company is on track with the execution of its long-term strategic plans, including the development of Camelina as a commercial crop platform solution.
The company is operationalizing the commercial plan to launch Camelina as a platform crop to supply low-carbon feedstock oil for the biofuel market and produce omega-3 nutritional oil and PHA bioplastic in the longer term. Additionally, internal program testing in corn for the creation of hybrid corn and the non-exclusive research license with GDM for the evaluation of seed-yield traits in soybean are likely to keep aiding the stock.
The Zacks Consensus Estimate for 2022 loss of $2.87 per share has narrowed from a loss of $3.14 in the past 30 days. The Zacks Consensus Estimate for YTEN's current-year sales suggests growth of 6.8%, while that for earnings indicates a decline of 23.2% from the year-ago period's reported figures.
The company has reported an earnings surprise of 0.8%, on average, in the trailing four quarters. Yield10 currently has a Zacks Rank #2. The company's shares have declined 73.9% in the past year.
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 the high flexibility of its assets, which is 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 currently carries a Zacks Rank #2. Its stock has lost 14.6% in the past year. The Zacks Consensus Estimate for AGRO's 2022 earnings has moved up 4.4% in the past 30 days. The Zacks Consensus Estimate for the company's 2022 sales and earnings suggests growth of 27.2% and 1.4%, respectively, from the year-ago period's reported figures.
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 been unchanged in the past 30 days. The Zacks Consensus Estimate for its 2022 sales and earnings suggests growth of 8.9% and 18.1%, respectively, from the year-ago period's reported figures. The company has reported an earnings surprise of 22.3%, on average, in the trailing four quarters. It currently has a Zacks Rank #3. The stock has rallied 26.9% in the past year.
Calavo Grower: The Santa Paula, CA-based company markets and distributes avocados, prepared avocados, and other perishable foods to retail grocery and foodservice customers, club stores, mass merchandisers, food distributors, and wholesale customers worldwide. The company has been benefiting from the robust demand for fresh, healthy and convenient products.
It is positioned to benefit from the progress on its Project Uno, focused on improving profits through pricing initiatives, SKU rationalization, plant optimization and unified procurement, freight, and back-office activities across all business units. CVGW is gaining from price increases across its product lines amid the inflationary cost environment. However, industry-wide inflationary pressures on raw materials, freight and labor costs remain uncertain.
The Zacks Consensus Estimate for the company's current fiscal-year EPS has moved down 7.9% in the past seven days. The Zacks Consensus Estimate for CVGW's current fiscal-year sales and earnings suggests growth of 12.4% and 200%, respectively, from the year-ago period's reported figures. It has recorded an earnings surprise of 24.7%, on average, in the trailing four quarters. CVGW currently carries a Zacks Rank #3. Its shares have declined 41.7% in the past year.
Why Haven't You Looked at Zacks' Top Stocks?
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights Archer Daniels Midland, Corteva, Yield10 Bioscience, Adecoagro and Calavo Grower
For Immediate Release
Chicago, IL – June 15, 2022 – Today, Zacks Equity Research discusses Archer Daniels Midland Co. (ADM - Free Report) , Corteva Inc. (CTVA - Free Report) , Yield10 Bioscience, Inc. (YTEN - Free Report) , Adecoagro S.A. (AGRO - Free Report) and Calavo Grower (CVGW - Free Report)
Industry: Agriculture Operations
Link: https://www.zacks.com/commentary/1938513/5-stocks-to-watch-on-robust-agriculture-operations-industry-trends
The Zacks Agriculture – Operations industry is poised to benefit from improved consumer demand for healthy products and innovations. Investments in acquisitions, joint ventures and expansion are likely to fortify the prospects of the industry players. Logistic and supply-chain issues, higher input costs, and elevated operational expenses have continued to mar 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 Co., Corteva Inc., Yield10 Bioscience, Inc., Adecoagro S.A. and Calavo Grower.
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 (like clothing, animal feed, energy and industrial products).
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, soybeans, 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 adapting to 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.
Moreover, 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.
Strong Agricultural Export Projections: Per the U.S. Department of Agriculture, agricultural export projections for fiscal 2022 (ending Sep 30) indicate a record number of $191 billion, an increase of $7.5 billion from expectations released in February. The key factors resulting in higher export projections are increases in corn, cotton, and soybeans.
Corn forecast of $19.1 billion indicates a $2.2 million increase due to robust volumes and higher unit values. Cotton exports are expected to be $9.0 billion, up $1.0 billion from the prior forecast on higher unit values. Soybean exports are likely to grow $1.0 billion to $32.3 billion as higher volumes more than offset lower unit values.
Overall grain and feed exports are projected to be $3.8 billion higher to $46.7 billion, with gains across all commodities except rice. Total oilseed and product exports are estimated to be $700 million higher to $44.3 billion. Additionally, increases in the export forecast for livestock, poultry and dairy products are likely to be driven by gains across all major commodities, except pork.
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 entering partnerships and distribution strategies. Despite the pricing strategies, the challenges in supply chains and cost inflation are expected to continue hurting margins in the near term.
Companies in the industry continue to face higher SG&A expenses due to higher performance-related compensation, project-related costs, commissions, and variable compensation. The companies are also witnessing higher 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 13-stock group within the broader Zacks Consumer Staples sector. The industry currently carries a Zacks Industry Rank #96, which places it at the top 38% 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. In the past year, the industry's earnings estimates for the current year have increased 13.8%.
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 11.6% in a year against declines of 8.9% for the Zacks S&P 500 composite and 2.2% for the sector.
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 15.19X compared with the S&P 500's 16.67X and the sector's 19.28X.
Over the last five years, the industry has traded as high as 17.68X, as low as 10.24X and at the median of 14.37X.
5 Agriculture Operations Stocks to Keep an Eye on
None of the stocks in the Zacks Agriculture – Operations universe currently sport a Zacks Rank #1 (Strong Buy). Here, we have mentioned three stocks with a Zacks Rank #2 (Buy). We suggest two more 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. Its Readiness program, positive cash flow and solid performance at the Nutrition unit have been aiding results. The company has been progressing well on its three strategic pillars — optimize, drive and growth.
Management is optimistic about 2022 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 3.3% in the past 30 days to $6.33 per share. The Zacks Consensus Estimate for ADM's 2022 sales and earnings suggests growth of 12.3% and 22%, respectively, from the year-ago period's reported figures. It has reported an earnings surprise of 22.3%, on average, in the trailing four quarters. The company currently carries a Zacks Rank #2. It has rallied 26.9% in the past year.
Yield10 Bioscience: The Zacks Rank #2 agricultural bioscience company is focused on developing technologies to achieve improvements in crop yield to enhance global food security. The company is on track with the execution of its long-term strategic plans, including the development of Camelina as a commercial crop platform solution.
The company is operationalizing the commercial plan to launch Camelina as a platform crop to supply low-carbon feedstock oil for the biofuel market and produce omega-3 nutritional oil and PHA bioplastic in the longer term. Additionally, internal program testing in corn for the creation of hybrid corn and the non-exclusive research license with GDM for the evaluation of seed-yield traits in soybean are likely to keep aiding the stock.
The Zacks Consensus Estimate for 2022 loss of $2.87 per share has narrowed from a loss of $3.14 in the past 30 days. The Zacks Consensus Estimate for YTEN's current-year sales suggests growth of 6.8%, while that for earnings indicates a decline of 23.2% from the year-ago period's reported figures.
The company has reported an earnings surprise of 0.8%, on average, in the trailing four quarters. Yield10 currently has a Zacks Rank #2. The company's shares have declined 73.9% in the past year.
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 the high flexibility of its assets, which is 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 currently carries a Zacks Rank #2. Its stock has lost 14.6% in the past year. The Zacks Consensus Estimate for AGRO's 2022 earnings has moved up 4.4% in the past 30 days. The Zacks Consensus Estimate for the company's 2022 sales and earnings suggests growth of 27.2% and 1.4%, respectively, from the year-ago period's reported figures.
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 been unchanged in the past 30 days. The Zacks Consensus Estimate for its 2022 sales and earnings suggests growth of 8.9% and 18.1%, respectively, from the year-ago period's reported figures. The company has reported an earnings surprise of 22.3%, on average, in the trailing four quarters. It currently has a Zacks Rank #3. The stock has rallied 26.9% in the past year.
Calavo Grower: The Santa Paula, CA-based company markets and distributes avocados, prepared avocados, and other perishable foods to retail grocery and foodservice customers, club stores, mass merchandisers, food distributors, and wholesale customers worldwide. The company has been benefiting from the robust demand for fresh, healthy and convenient products.
It is positioned to benefit from the progress on its Project Uno, focused on improving profits through pricing initiatives, SKU rationalization, plant optimization and unified procurement, freight, and back-office activities across all business units. CVGW is gaining from price increases across its product lines amid the inflationary cost environment. However, industry-wide inflationary pressures on raw materials, freight and labor costs remain uncertain.
The Zacks Consensus Estimate for the company's current fiscal-year EPS has moved down 7.9% in the past seven days. The Zacks Consensus Estimate for CVGW's current fiscal-year sales and earnings suggests growth of 12.4% and 200%, respectively, from the year-ago period's reported figures. It has recorded an earnings surprise of 24.7%, on average, in the trailing four quarters. CVGW currently carries a Zacks Rank #3. Its shares have declined 41.7% in the past year.
Why Haven't You Looked at Zacks' Top Stocks?
Our 5 best-performing strategies have blown away the S&P's impressive +28.8% gain in 2021. Amazingly, they soared+40.3%, +48.2%, +67.6%, +94.4%, and+95.3%. Today you can access their live picks without cost or obligation.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.