Rising concerns around immunity and hygiene amid the COVID-19 pandemic have motivated many people to shift to organic food products. In response, many food companies have added organic products to their offerings to capitalize on the trend.
However, the huge demand for basic ingredients, like wheat, corn and soya from China, is driving an increase in food prices. In the United States, food prices have risen 3.5% over the past 12 months. However, for companies that are expanding their organic food offerings, the rising demand for organic foods is expected to more than offset the decline in their profits due to the rise in overall food prices According to a Globe Newswire report released last December, the global organic food market is expected to grow at 12.2% CAGR to reach $272.18 billion by 2027.
Given this backdrop, we believe organic food companies Sprouts Farmers Market, Inc. (SFM), Natural Grocers by Vitamin Cottage, Inc. (NGVC), and Lifeway Foods, Inc. (LWAY) have the potential to deliver solid returns in the near term.
Sprouts Farmers Market, Inc. (SFM)
SFM is a specialty retailer of fresh, natural, and organic food products in the United States. Through its healthy grocery stores, the company sells a variety of products categorized under perishable and non-perishable. Its products include fresh produce, vitamins and supplements, grocery, meat and seafood, bakery, dairy, body care and natural household items.
SFM’s 2020 Environmental, Social, and Governance (ESG) Report, published on April 28, 2021, highlights its commitment to growing its coast-to-coast business sustainably and responsibly. The company was able to reduce refrigeration-related emissions and carbon emissions by a significant amount in 2020. It also achieved a 58% overall diversion rate by recycling nearly 78,000 tons of food and other items.
SFM opened its first distribution center in Aurora, Colorado in March. The company hopes to build its stores and distribution centers closer to each other to facilitate greater customer access. SFM also announced its partnership with Penske Logistics as its third-party logistics provider for the distribution center and dedicated transportation fleet. It plans to open another distribution center in Florida in summer.
SFM is scheduled to release its fiscal year 2021 first quarter financial results on May 6, after the market closes. SFM’s net sales increased 17.4% year-over-year to $1.60 billion for the fourth quarter, ended December 31. The company’s gross profit increased 25.4% year-over-year to $588.03 million. Its income from operations came in at $92.93 million, up 98.1% from the prior-year period. And SFM’s $69.74 million in adjusted net income represents a 120.4% improvement year-over-year. Its adjusted EPS increased 118.5% year-over-year to $0.59.
A $2.03 consensus EPS estimate for its fiscal year ending December 2022 represents a 9.1% rise year-over-year. SFM surpassed consensus EPS estimates in each of the trailing four quarters. The $1.64 billion consensus revenue estimate for the next quarter, ending September 30, represents a 3.9% gain on a year-over-year basis.
The stock has gained 30.4% year-to-date and 34.6% over the past six months. It closed yesterday’s trading session at $26.21.
SFM’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates 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.
The stock has an A grade for Quality, and a B grade Value. We have also graded SFM for Growth, Stability, Sentiment, and Momentum. Click here to access all SFM’s ratings.
SFM is ranked #22 of 40 stocks in the A-rated Grocery/Big Box Retailers industry.
Natural Grocers by Vitamin Cottage, Inc. (NGVC)
NGVC operates natural and organic groceries and dietary supplement retail stores in the United States. The company’s products also include body care, pet care, household and general merchandise, and books and handouts. It sells organic produce sourced from local producers.
On April 29, 2021, NGVC announced its new expanded line of Natural Grocers Brand Vitamins & Supplements. The company introduced a comprehensive range of vitamins, herbs, minerals, and precision formulas, that have high quality ingredients and third-party certified Good Manufacturing Practices.
On May 6, NGVC plans to relocate and reopen its new store a few steps away from its original location in Pueblo, Colo. The new store is 30% larger than the old one, and will include a Nutrition Education Center, and enable a more efficient checkout and increased product selections throughout the store.
NGVC is scheduled to release its fiscal 2021 second quarter results on May 6, after the market closes. For its fiscal year 2021 first quarter, ended December 31, NGVC’s net sales increased 15.2% year-over-year to $265.05 million. The company’s gross profit came in at $73.03 million, which represented a 20.7% improvement year-over-year. Its $5.20 million in operating income for the quarter represents an 82.7% improvement year-over-year. While its net income increased 94.4% year-over-year to $3.63 million, its EPS increased 100% from the prior-year period to $0.16.
For its next fiscal year, ending September 30, 2022, analysts expect NGVC’s EPS to be $0.75, representing a 13.6% improvement year-over-year. Analysts expect the stock’s revenue to be $1.10 billion for the next fiscal year, up 6.1% from the prior-year period. The company’s EPS is expected to grow at 5.1% per annum over the next five years.
NGVC has gained 40.7% over the past year and 45.1% over the past six months. It closed yesterday’s trading session at $15.93.
It’s no surprise that NGVC has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock has a B grade for Growth, Value, Quality, and Sentiment. Click here to see the additional ratings for NGVC (Stability and Momentum).
NGVC is ranked #8 in the Grocery/Big Box Retailers industry.
Lifeway Foods, Inc. (LWAY)
LWAY manufactures and sells probiotic, cultured, and functional dairy and nondairy health food products. The company’s primary product is kefir, a dairy beverage like but distinct from yogurt, ranging in various flavors and package configurations. It also offers soft cheeses, cream and other products. The recipes are made available through its website.
, The molecules in LWAY’s kefir are found to be effective at treating various inflammatory conditions that attack the immune system, including ‘cytokine storms’, caused by COVID-19 and other diseases, according to a report published in Microbiome this month. These molecules help maintain the gut microbiome to support a healthy immune system. LWAY believes this new research supports the benefits of its probiotics and kefirs.
In February, LWAY introduced two new lines to its collection of best-selling kefir products: 3.5oz Functional Shot Multipacks and Organic Grassfed Kefir.
For its fourth quarter, ended December 31, 2020, the company’s net sales increased 10.4% year-over-year to 25.59 million. LWAY’s gross profit came in at $6.43 million, which represents a 25.9% rise from its prior-year period. Its income from operations was $630,000 for the quarter, compared to a $1.21 million loss in the fourth quarter of 2019. Its net cash provided by operating activities increased 67.5% year-over-year to $6.39 million. The company had cash and cash equivalents of $7.93 million as of December 31, 2020.
The stock has gained 81.9% over the past year and 62.9% over the past nine months. It closed yesterday’s trading session at $5.13.
LWAY’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to Strong Buy in our POWR Ratings system.
The stock also has an A grade for Growth, and a B grade for Value, Quality, and Stability. In addition to the POWR Ratings grades we’ve just highlighted, one can see LWAY’s ratings for Sentiment and Momentum here.
LWAY is ranked #4 of 49 stocks in the B-rated Food Makers industry.
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SFM shares were trading at $25.97 per share on Friday afternoon, down $0.24 (-0.92%). Year-to-date, SFM has gained 29.20%, versus a 12.01% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...
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