With a major chunk of the earnings releases behind us, the quarter seems to have fared quite well so far. While the number of overall positive surprises has been greater than previous periods, the revenue picture has been particularly impressive – in regard to both year-over-year growth as well as beat percentage.
Though several sectors are nearing the last leg of their reporting cycle, we are yet to see results from quite a few food stocks that form part of the Consumer Staples sector that is currently placed among the bottom 38% out of all Zacks sectors. Per the latest Earnings Trends, the sector is likely to witness earnings growth of 3.3% on a 1.5% rise in revenues.
How is the Food Space Placed?
The food Industry has been grappling with several issues of late, including stiff competition, sluggish traffic and an intense promotional environment stemming from consumers’ changing preferences. Moreover, the food space is battling soft volumes and inflated input prices. Back-to-back hurricanes also had a detrimental impact on food stocks with operations spread in the affected regions.
While these factors make us jittery about the performance of food stocks in the quarter to be reported, we expect the companies to keep gaining from their focus on acquisitions, packaging methods and innovations, which have long been their growth drivers. Evidently, benefits from buyouts fueled top and bottom lines of Pinnacle Foods Inc. and SUPERVALU INC in their recently reported results. Also, food companies have been undertaking efforts to expand in the fast-growing organic goods space to resonate with the changing consumer demand. These factors, along with stringent cost-saving initiatives should cushion the food stocks from industry headwinds.
Another factor that works in favor of food stocks is that they are relatively less vulnerable to adverse economic conditions, though they’re sure to step up during economic recovery when higher disposable income increases the demand for food. That said, we also remain encouraged about food stocks’ performance, given the favorable economic indicators like improving employment scenario and higher consumer confidence. Incidentally, Consumer Confidence — a key determinant of the economy’s health — reached its highest level in almost 17 years in this October.
How to Pick Prospective Winners
Amid these mixed signals, we used the Zacks methodology and identified food stocks that not only boast solid fundamentals but are also poised to beat earnings estimates this earnings season. Our research shows that for stocks with the combination of a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP, the chance of a positive earnings surprise is as high as 70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
That said, investors can count on these stocks which are most likely to top estimates.
Tyson Foods, Inc. (TSN - Free Report) , which is slated to report fourth-quarter fiscal 2017 results on Nov 13, is a solid bet. The company’s Earnings ESP of +1.28% and Zacks Rank #2 make us reasonably confident of a positive surprise. We expect the company to continue gaining from rise in demand at the beef and chicken segments. Rising preference for protein rich brands in the prepared foods category is also expected to favor Tyson Foods’ performance. The Zacks Consensus Estimate for the quarter is pegged at $1.37.
Another stock worth considering is The J. M. Smucker Company (SJM - Free Report) , which has an Earnings ESP of +0.88% and a Zacks Rank #3. This consumer food and beverage products, and pet food and snacks manufacturer is scheduled to post second-quarter fiscal 2018 results on Nov 16. J.M. Smucker’s consensus mark for earnings is currently pegged at $1.89. Notably, the company has a long-term earnings growth rate of 6.6%.
We also suggest investing in Nomad Foods Limited (NOMD - Free Report) , which is slated to report third-quarter 2017 results on Nov 28. This manufacturer and distributor of frozen foods has an Earnings ESP of +8.70%. The Zacks Consensus Estimate for the quarter is currently pegged at 23 cents. Further, the company, which has delivered back-to-back positive earnings surprises in the past two quarters, sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Another viable option is Hormel Foods Corporation (HRL - Free Report) , a leading manufacturer and marketer of various meat and food products in the United States and international markets. The stock carries a Zacks Rank #3 and has an Earnings ESP of +1.52%. The Zacks Consensus Estimate for the quarter is pegged at 39 cents. The company, which has a long-term earnings growth rate of 9.3%, is slated to announce fourth-quarter fiscal 2017 results on Nov 21.
Investors can also place bets on United Natural Foods, Inc. (UNFI - Free Report) , which is expected to release first-quarter fiscal 2018 results next month. This leading distributor of natural, organic and specialty food and non-food products has an impressive earnings surprise history, and a long-term earnings growth rate of 5%. Notably, United Natural Foods’ Zacks Rank #2 and Earnings ESP of +6.33% indicate that the company is likely to maintain its solid surprise trend. We expect the company’s diversified portfolio and synergies from acquisitions to aid the beat. The current consensus estimate for the quarter is pegged at 59 cents.
Well, these five stocks are not the only ones to bet on. With the help of the Zacks Stock Screener and some permutation and combination, you can also discover other consumer staples stocks that have the potential to deliver a positive earnings surprise.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Click for details >>