November’s inflation report came in cooler than expected. As per the Labor Department report, the consumer price index rose just 0.1% from the previous month and 7.1% from a year ago. However, food prices rose 0.5% for the month.
Although food inflation remains high, holiday food shopping continues in full swing. Data from the Food Industry Association (FIA) revealed that shoppers are spending more money at stores than in 2021, despite high costs.
Moreover, convenient packaged foods have risen in prominence over the years because they are easy to serve, handle, and consume. The global packaged food market is expected to grow at a 4.5% CAGR to reach $4.11 trillion by 2028.
As food manufacturers face a stable demand regardless of economic conditions, fundamentally strong stocks The Hershey Company (HSY), Sysco Corporation (SYY), US Foods Holding Corp. (USFD), Flowers Foods, Inc. (FLO), and Pilgrim’s Pride Corporation (PPC) might be solid buys this holiday season.
The Hershey Company (HSY)
HSY manufactures and sells confectionery products and pantry items globally. The company operates through its three broad segments: North America Confectionery; North America Salty Snacks; and International.
For the fiscal third quarter ended October 2, HSY’s net sales increased 15.6% year-over-year to $2.73 billion. Non-GAAP net income rose 2.8% from the prior-year quarter to $447.07 million. Non-GAAP EPS improved 3.3% from the same period last year to $2.17.
For the fiscal year 2022, the company raised its net sales growth by 14-15%. HSY also expects adjusted earnings per share growth of 14%-15% to a projected range of $8.20 – $8.27.
The consensus EPS estimate of $8.26 for the fiscal year 2022 indicates a 14.9% year-over-year increase. Likewise, the consensus revenue estimate for the same year of $10.34 billion reflects a rise of 15.3% from the prior year. HSY surpassed consensus EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 22.2% year-to-date and 8% over the past month to close its last trading session at $236.33.
HSY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
HSY has a Quality grade of B. In the 84-stock Food Makers industry, it is ranked #28. The industry is rated B.
Click here to see the additional POWR Ratings for HSY (Growth, Value, Momentum, Stability, and Sentiment).
Sysco Corporation (SYY)
SYY distributes various food and related products primarily to the food service or food-away-from-home industry. The company operates through U.S. Foodservice Operations; International Foodservice Operations; SYGMA; and Other segments.
On December 7, SYY announced the launch of its tenth professional truck driver training facility in March 2022. The operation of Commercial Driver’s License (CDL) training facilities at its sites should benefit the company.
On November 17, SYY declared a regular quarterly dividend of $0.49 per share, payable to shareholders on January 27, 2023. This underscores the company’s shareholder return ability.
SYY’s sales increased 16.2% year-over-year to $19.13 billion in the fiscal first quarter ended October 1. Its non-GAAP net earnings and non-GAAP EPS improved 14.6% and 16.9% from the prior-year period to $492.60 million and $0.97, respectively.
Analysts expect SYY’s EPS for the quarter ending December 2022 to increase 49.1% year-over-year to $0.85. Likewise, Street expects revenue for the same quarter to improve 13.9% from the prior-year period to $18.58 billion.
SYY’s stock has gained 12.4% over the past year and 5% year-to-date to close its last trading session at $82.51.
It’s no surprise that SYY has an overall B rating, which translates to Buy in our POWR Ratings system.
SYY has an A grade for Growth and a B for Value and Stability. It is ranked #8 in the Food Makers industry.
To see the additional POWR Ratings for Momentum, Sentiment, and Quality for SYY, click here.
US Foods Holding Corp. (USFD)
USFD sells and distributes fresh, frozen, and dry food and non-food products to U.S. food service customers. The company serves restaurants, national restaurant chains, hospitals, hotels, government and military organizations, colleges and universities, and retail locations.
On October 10, USFD announced the beginning of the national roll-out of MOXē (Making Operator Xperiences Easy), an all-in-one e-commerce application for desktops, tablets, and mobile devices. This might be strategically advantageous for the company.
In September, USFD unveiled its plans to open a US Foods CHEF’STORE in St. George, Utah, in February 2023. This should bolster the company’s top line.
For the fiscal third quarter ended October 1, USFD’s net sales increased 13% year-over-year to $8.92 billion. Its adjusted net income and adjusted EPS improved 26.9% and 25% from the prior-year period to $151 million and $0.60, respectively.
Street EPS estimate for the quarter ending December 2022 of $0.53 reflects an improvement of 39.5% from the prior-year quarter. Its revenue for the same period is expected to grow 11.4% year-over-year to $8.51 billion.
USFD’s stock has gained 26.8% over the past six months to close its last trading session at $35.98. It has gained 18.2% over the past three months.
This promising prospect is reflected in USFD’s POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
USFD has a Growth and Value grade of B. It is ranked #17 in the same industry.
Click here for USFD’s POWR Ratings for Momentum, Stability, Sentiment, and Quality.
Flowers Foods, Inc. (FLO)
FLO operates as a producer and marketer of packaged bakery products in the United States. The company offers its products under Nature’s Own, Dave’s Killer Bread, Wonder, Canyon Bakehouse, Mrs. Freshley’s, and Tastykake brand names.
On December 13, FLO announced a definitive agreement to acquire Papa Pita Bakery, a manufacturer and distributor of baked goods. The acquisition is expected to be completed in the first quarter of 2023 and should add to FLO’s operative capacity.
On November 18, the company declared a quarterly dividend of $0.22 per share, reflecting an increase of 4.8% from the same quarter last year. The dividend is payable to shareholders on December 16, 2022.
FLO’s sales increased 12.7% year-over-year to $1.16 billion in the fiscal third quarter ended October 8. Adjusted EBITDA grew 1.6% from the same period last year to $120.41 million. Adjusted EPS was consistent with the prior-year period at $0.30.
Analysts expect FLO’s revenue and EPS for the quarter ending December 2022 to increase 12.4% and 20% year-over-year to $1.11 billion and $0.24, respectively. Moreover, FLO has an impressive surprise earnings history, as it surpassed consensus EPS estimates in three of the trailing four quarters.
The stock has gained 15% over the past six months and 10.2% over the past three months to close its last trading session at $28.75.
FLO’s overall rating of B, equating to Buy in our POWR Ratings system. The stock has a Growth and Quality grade of B. It is ranked #19 in the Food Makers industry.
Beyond what we have stated above, FLO’s ratings for Value, Momentum, Stability, and Sentiment can be seen here.
Pilgrim’s Pride Corporation (PPC)
PPC produces, processes, markets, and distributes fresh, frozen, and value-added chicken and pork products internationally to retailers, distributors, and food service operators.
In terms of its forward P/E, PPC is trading at 5.69x, 73% lower than the industry average of 21.09x. The stock’s forward Price/Sales multiple of 0.32 is 72.6% lower than the industry average of 1.17.
For the fiscal third quarter ended September 25, PPC’s net sales increased 16.8% year-over-year to $4.47 billion. Adjusted net income attributable to Pilgrim’s and adjusted net income attributable to Pilgrim’s per common share came in at $260.73 million and $1.09, up 60.5% and 62.7% year-over-year, respectively.
The consensus EPS estimate of $4.17 for the fiscal year 2022 indicates an 82.9% year-over-year increase. Likewise, the consensus revenue estimate for the same year of $17.54 billion reflects a rise of 18.7% from the prior year. It surpassed consensus EPS estimates in each of the trailing four quarters.
PPC’s shares have declined 2.2% intraday to close its last trading session at $23.78.
PPC’s overall A rating equates to a Strong Buy in our POWR Ratings system. The stock has a B grade for Growth, Value, Stability, Sentiment, and Quality. It is ranked #4 in the same industry.
In addition to the POWR Rating grades we’ve stated above, one can see PPC’s rating for Momentum here.
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REVISED: 2023 Stock Market Outlook (includes top 7 picks)
HSY shares were trading at $236.74 per share on Wednesday afternoon, up $0.41 (+0.17%). Year-to-date, HSY has gained 24.58%, versus a -14.67% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...
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