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3 Food Products Stocks Poised to Surpass Earnings Estimates

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The Consumer Staples Sector

The sector is currently at the bottom of the Zacks sector list. Year to date, it has declined 12.4%, against 2% gain recorded by the S&P 500.

As of May 9, roughly 86.7% of the Consumer Staples companies in the S&P 500 group reported their results. Earnings collectively have grown 8.9% with a beat ratio of 73.1% while revenues have increased 3.9% year over year with a beat ratio of 69.2%.

In addition to the food industry, companies from the funeral services, textile, agriculture, beverage, soap and cleaning materials and others are included in the Consumer Staples sector. For the January-March quarter, earnings of this sector are predicted to increase 8.7% on revenue growth of 4.2%. For full-year 2018, earnings are anticipated to grow 8.2% and revenues to decrease 5.1%.

We here focus on the food industry, which is currently enjoying several tailwinds despite risks. The food industry has immense growth potential on the back of rising population, growing disposable income and higher standard of living. Also, rise in international trades is a boon for this industry. Growing desire for high quality and healthy products among consumers is driving the food companies to work on new and innovative products as well as maintain greater transparency in terms of ingredients used and nutritional benefits of their products.

On the flip side, growing preferences for low-calorie and vegetarian foods can be concerning for companies dealing in meat and chicken products. These companies are also at risk of an outbreak of livestock diseases, which might create sudden supply chain challenges. In particular, the turkey market is grappling with an oversupply situation and depressed turkey prices. Also, conflict in international trade policies among nations can hurt demand for food products.

Per the latest World Agricultural Supply and Demand Estimates report issued by U.S. Department of Agriculture, total supply of red meat (including beef, pork and others) in 2018 is predicted to be 59,920 million pounds, down 0.7% from its forecast issued in April. However, the demand for red meat is expected to stay low at 49,659 million pounds, down 0.9% from the earlier projection. Also, supply for poultry (including broiler, turkey and others) in 2018 is projected to be 49,666 million pounds, roughly 0.1% below the previous projection while demand will likely be 40,789 million pounds, down 0.1% from the previous estimates. However, demand and supply for both red meat and poultry products are projected to strengthen in 2019.

Zacks Model to Judge the Stocks

Investment decisions, especially during an earnings season, can be addressed by using some of Zacks models. A popular way is to opt for stocks that possess a combination of favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or (Hold) and a positive Earnings ESP.  You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP is the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate for earnings.

By Zacks rule, this combination suggests that a stock has a high probability of beating estimates in the to-be reported quarter. An investor can try and optimize portfolio returns through this method.

We have zeroed in on three stocks that can be a great investment option for investors interested in the U.S. food industry. A brief discussion on these favorable stocks is provided below:

Hormel Foods Corporation (HRL - Free Report) : The company is one of leading manufacturer and marketer of meat and food products in the United States and internationally. Strong brand image, effective marketing strategies and meaningful acquisitions bode well for the company.

The company, with approximately $19.2 billion market capitalization, currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Its Earnings ESP for the second quarter of fiscal 2018 (ended April 2018) is +0.90%. The Zacks Consensus Estimate for the to-be-reported quarter is at 45 cents, reflecting 2.3% growth from the 60-day ago tally.

The stock’s earnings estimates remained stable at $1.75 for fiscal 2018 (ending October 2018) and $1.87 for fiscal 2018 (ending October 2018). Calendar-year to date, the company’s stock has lost 0.4% versus 12.2% decline recorded by the industry it belongs to.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing a negative estimate revision momentum.

The company is scheduled to release its results on May 24, before the market opens.

Sanderson Farms, Inc. (SAFM - Free Report) : The company is primarily engaged in manufacturing and selling chicken-based products. Available in fresh, frozen and marginally cooked forms, these products adheres to high standards for consumer safety.

With roughly $2.6 billion market capitalization, the company currently carries a Zacks Rank #3. Its Earnings ESP for the second quarter of fiscal 2018 (ended April 2018) is +18.48%. The Zacks Consensus Estimate for the to-be-reported quarter is pegged at $2.04, reflecting fall of 2.9% from the tally 60 days ago.

Also, the stock’s earnings estimates are pegged at $9.23 for fiscal 2018 (ending October 2018) and $7.86 for fiscal 2019 (ending October 2019), reflecting decline of 4.1% and 3.8% from the respective tallies 60 days ago. Since the beginning of calendar year 2018, the company’s stock has lost 18.1%, underperforming 12.2% decline recorded by the industry it belongs to.

The company is scheduled to release its results on May 24, before the market opens.

Flowers Foods, Inc. (FLO - Free Report) : The company is one of the leading bakery food producers in the United States. Its packaged bakery items are primarily sold to foodservice and retail customers.

The company, with approximately $4.8 billion market capitalization, currently carries a Zacks Rank #3. Its Earnings ESP for the first quarter of 2018 is +3.85%. The Zacks Consensus Estimate for the first quarter remained stable at 30 cents in the last 60 days.

The stock’s earnings estimates are pegged at $1.08 for 2018 and $1.15 for 2019, reflecting growth of 3.8% and 4.5% from the respective tallies 60 days ago. Year to date, the company’s stock has yielded 17.2% return, outperforming 11.9% sector decline.

The company is expected to release its results on May 16, after the market closes.

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In-Depth Zacks Research for the Tickers Above


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Hormel Foods Corporation (HRL) - free report >>

Sanderson Farms, Inc. (SAFM) - free report >>

Flowers Foods, Inc. (FLO) - free report >>

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