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Is the future of packaged food companies fraught with uncertainties this year? With the extended period of low interest rate coming to an end, it is possible that the food sector will face varied headwinds. However, President Donald Trump’s tax reforms should be a major boon for such firms.
To top it off, a flurry of promotional activities, cost trimming measures and deals will certainly help food companies deliver another year of above-average earnings growth. Such optimism calls for investing in the packaged-food space.
Trump Tax Reforms
The packaged-food space may be viewed as a treacherous territory due to threats such as rising interest rates and disproportionate increase in fiscal stimulus measures. However, in general, U.S. food stocks gained more than 10% in 2016 following the 15% rise in 2015.
In fact, the food market reported a 12% post-election rise, while many analysts projected a significant increase in earnings for food companies following Trump’s anticipated tax reforms. He plans to trim the business tax rate to 15% from 35%, which should boost large packaged-food firms. Tyson Foods, Inc. (TSN - Free Report) , Conagra Brands Inc (CAG - Free Report) , Campbell Soup Company (CPB - Free Report) and Pinnacle Foods Inc are specifically expected to gain significantly under the new administration.
The President also mentioned plans to deregulate the FDA, but, it’s highly unlikely that he will go all out to attack the food industry. Let’s not forget that the food industry accounts for the bulk of imports and exports in the country.
Promotional Activity and Other Tailwinds
Effective promotional strategies, cost-saving and restructuring initiatives could also be seen beneficial for the food industry at large. Food companies, B&G Foods, Inc. (BGS - Free Report) and General Mills, Inc. (GIS - Free Report) have been rolling out a variety of nutritious products in view of increasing health consciousness and rising obesity concerns.
Pinnacle Foods had acquired Boulder Brands Inc to meet changing consumer tastes, while the company also aims to expand its presence in the natural and organic retail channel. Global leader in spices and seasonings, McCormick & Co., Inc. (MKC - Free Report) also reshuffled its portfolio to increase the amount of organic herbs and spices amid rising demand for organic food products.
Mergers and acquisitions ramped up in the packaged foods industry after 3G Capital raised $8 billion–$10 billion from potential investors to fund its next acquisition target, according to Brazil Journal. And given the stellar success of the Heinz and Kraft acquisitions, it’s fair to presume that 3G Capital’s newly created $10 billion fund will help Kraft Heinz Foods Co make another acquisition. Mondelez International Inc (MDLZ - Free Report) is likely to be the candidate, while it is also believed that 3G Capital will readily engage with a variety of companies including General Mills, Kellogg (K - Free Report) and Campbell Soup.
Treehouse Foods Inc. (THS - Free Report) , which was spun off by Dean Foods Company , has been expanding its product offerings through a number of acquisitions. The acquisition of Private Brands business last year from Conagra Brands generated significant revenues for the company. Any acquisition enhances revenue through gain in market share, while it also generates cost efficiency through economies of scale and can even create tax gains.
5 Top Packaged Food Stocks to Buy Now
Trump’s anticipated tax reforms along with innovations, cost-cutting initiatives, acquisitions and strategic partnerships in the food business are expected to stand in good stead for packaged-food companies. These companies also sell products that are consumed all year round in all economic cycles, which make them less vulnerable to the vagaries of the broader market. We have thus selected five solid packaged-food firms that boast a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Conagra Brands, Inc. operates as a packaged food company, offering branded and customized food products. It also supplies vegetable, spice and grain products to a range of restaurants, foodservice operators and commercial customers. The Zacks Consensus Estimate for its current year earnings increased 1% over the last 60 days. Conagra Brands gained 7.80% last month.
Conagra is improving its margin to drive commercial growth and generate greater cash flow. Improved price/mix, input cost favorability and supply-chain productivity are expected to drive the profit margin in the quarters ahead. The company also believes that these factors will support margin growth to at least 32% by the end of fiscal 2020.
B&G Foods, Inc. manufactures, sells and distributes a portfolio of shelf-stable, and frozen food and household products. The Zacks Consensus Estimate for its current year earnings advanced 0.5% over the last 60 days. B&G Foods rallied 2.3% in the last month, while it is expected to gain 11.9% in the current year.
B&G Foods’ dividend yield is way more attractive than its peers, while it actively pursues acquisitions which are appreciated by investors from time to time. The $1.86 dividend on a $45.10 share price now yields 4.14%.
Pinnacle Foods Inc. manufactures, markets and distributes branded convenience food products. The Zacks Consensus Estimate for its current year earnings increased 0.5% in the last 60 days. Pinnacle Foods rose 7.8% last month, while it is expected to gain 15.7% this year.
Pinnacle Foods reported strong results for the third quarter 2016, wherein its bottom line beat the Zacks Consensus Estimate. The company has delivered an average positive surprise of 2.09% in the last four trailing quarters.
Campbell Soup Company manufactures and markets food products. The company's segments include Americas Simple Meals and Beverages; Global Biscuits and Snacks, and Campbell Fresh. The Zacks Consensus Estimate for its current year earnings increased 0.5% in the last 60 days. Campbell Soup gained 6.3% in the last month, while it is expected to climb 5.1% in the current year.
The company has outperformed the broader industry in the last one year. Campbell Soup is also well on track with its strategic growth initiatives, as is evident from its focus on acquisitions and joint ventures, aimed at strengthening its brand portfolio.
US Foods Holding Corp. USFD markets and distributes fresh, frozen and dry food along with non-food products to foodservice customers. The Zacks Consensus Estimate for its current year earnings advanced 3.5% in the last 60 days. US Foods rose 20.2% in the last month.
US Foods saw 1.28 million shares trade hands on Jan 25, whereas the stock averages only a daily volume of 822,139 shares a day over the last month. Such a sudden spike in trading volume may be viewed as a major positive by investors. An increase in volume means more market awareness for the company, potentially setting up a more meaningful movement in stock price.
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5 Best Packaged Food Stocks to Buy in 2017
Is the future of packaged food companies fraught with uncertainties this year? With the extended period of low interest rate coming to an end, it is possible that the food sector will face varied headwinds. However, President Donald Trump’s tax reforms should be a major boon for such firms.
To top it off, a flurry of promotional activities, cost trimming measures and deals will certainly help food companies deliver another year of above-average earnings growth. Such optimism calls for investing in the packaged-food space.
Trump Tax Reforms
The packaged-food space may be viewed as a treacherous territory due to threats such as rising interest rates and disproportionate increase in fiscal stimulus measures. However, in general, U.S. food stocks gained more than 10% in 2016 following the 15% rise in 2015.
In fact, the food market reported a 12% post-election rise, while many analysts projected a significant increase in earnings for food companies following Trump’s anticipated tax reforms. He plans to trim the business tax rate to 15% from 35%, which should boost large packaged-food firms. Tyson Foods, Inc. (TSN - Free Report) , Conagra Brands Inc (CAG - Free Report) , Campbell Soup Company (CPB - Free Report) and Pinnacle Foods Inc are specifically expected to gain significantly under the new administration.
The President also mentioned plans to deregulate the FDA, but, it’s highly unlikely that he will go all out to attack the food industry. Let’s not forget that the food industry accounts for the bulk of imports and exports in the country.
Promotional Activity and Other Tailwinds
Effective promotional strategies, cost-saving and restructuring initiatives could also be seen beneficial for the food industry at large. Food companies, B&G Foods, Inc. (BGS - Free Report) and General Mills, Inc. (GIS - Free Report) have been rolling out a variety of nutritious products in view of increasing health consciousness and rising obesity concerns.
Pinnacle Foods had acquired Boulder Brands Inc to meet changing consumer tastes, while the company also aims to expand its presence in the natural and organic retail channel. Global leader in spices and seasonings, McCormick & Co., Inc. (MKC - Free Report) also reshuffled its portfolio to increase the amount of organic herbs and spices amid rising demand for organic food products.
Mergers and acquisitions ramped up in the packaged foods industry after 3G Capital raised $8 billion–$10 billion from potential investors to fund its next acquisition target, according to Brazil Journal. And given the stellar success of the Heinz and Kraft acquisitions, it’s fair to presume that 3G Capital’s newly created $10 billion fund will help Kraft Heinz Foods Co make another acquisition. Mondelez International Inc (MDLZ - Free Report) is likely to be the candidate, while it is also believed that 3G Capital will readily engage with a variety of companies including General Mills, Kellogg (K - Free Report) and Campbell Soup.
Treehouse Foods Inc. (THS - Free Report) , which was spun off by Dean Foods Company , has been expanding its product offerings through a number of acquisitions. The acquisition of Private Brands business last year from Conagra Brands generated significant revenues for the company. Any acquisition enhances revenue through gain in market share, while it also generates cost efficiency through economies of scale and can even create tax gains.
5 Top Packaged Food Stocks to Buy Now
Trump’s anticipated tax reforms along with innovations, cost-cutting initiatives, acquisitions and strategic partnerships in the food business are expected to stand in good stead for packaged-food companies. These companies also sell products that are consumed all year round in all economic cycles, which make them less vulnerable to the vagaries of the broader market. We have thus selected five solid packaged-food firms that boast a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Conagra Brands, Inc. operates as a packaged food company, offering branded and customized food products. It also supplies vegetable, spice and grain products to a range of restaurants, foodservice operators and commercial customers. The Zacks Consensus Estimate for its current year earnings increased 1% over the last 60 days. Conagra Brands gained 7.80% last month.
Conagra is improving its margin to drive commercial growth and generate greater cash flow. Improved price/mix, input cost favorability and supply-chain productivity are expected to drive the profit margin in the quarters ahead. The company also believes that these factors will support margin growth to at least 32% by the end of fiscal 2020.
B&G Foods, Inc. manufactures, sells and distributes a portfolio of shelf-stable, and frozen food and household products. The Zacks Consensus Estimate for its current year earnings advanced 0.5% over the last 60 days. B&G Foods rallied 2.3% in the last month, while it is expected to gain 11.9% in the current year.
B&G Foods’ dividend yield is way more attractive than its peers, while it actively pursues acquisitions which are appreciated by investors from time to time. The $1.86 dividend on a $45.10 share price now yields 4.14%.
Pinnacle Foods Inc. manufactures, markets and distributes branded convenience food products. The Zacks Consensus Estimate for its current year earnings increased 0.5% in the last 60 days. Pinnacle Foods rose 7.8% last month, while it is expected to gain 15.7% this year.
Pinnacle Foods reported strong results for the third quarter 2016, wherein its bottom line beat the Zacks Consensus Estimate. The company has delivered an average positive surprise of 2.09% in the last four trailing quarters.
Campbell Soup Company manufactures and markets food products. The company's segments include Americas Simple Meals and Beverages; Global Biscuits and Snacks, and Campbell Fresh. The Zacks Consensus Estimate for its current year earnings increased 0.5% in the last 60 days. Campbell Soup gained 6.3% in the last month, while it is expected to climb 5.1% in the current year.
The company has outperformed the broader industry in the last one year. Campbell Soup is also well on track with its strategic growth initiatives, as is evident from its focus on acquisitions and joint ventures, aimed at strengthening its brand portfolio.
US Foods Holding Corp. USFD markets and distributes fresh, frozen and dry food along with non-food products to foodservice customers. The Zacks Consensus Estimate for its current year earnings advanced 3.5% in the last 60 days. US Foods rose 20.2% in the last month.
US Foods saw 1.28 million shares trade hands on Jan 25, whereas the stock averages only a daily volume of 822,139 shares a day over the last month. Such a sudden spike in trading volume may be viewed as a major positive by investors. An increase in volume means more market awareness for the company, potentially setting up a more meaningful movement in stock price.
Want to see all of today's Zacks Strong Buys?
You are welcome to download the full, up-to-the-minute list of 220 Zacks Rank #1 stocks free of charge. There is no better place to start your own stock search. Plus you can also access the full list of must-avoid Zacks Strong Sells and other private research. See the stocks free >>.