Benzinga - by Zacks, Benzinga Contributor.
The Zacks Food – Meat Products industry players have been benefiting from consumers' growing appetite for protein-rich products stemming from their rising consciousness toward health and wellness. Efforts to make the most of these trends through product diversification, capacity expansion and exploring plant-based meats have been working well.
However, several meat companies have been battling hurdles associated with cost inflation, though the trend is moderating. Also, companies remain troubled by challenges in the Beef business. Nonetheless, the abovementioned upsides keep Tyson Foods, Inc. (NYSE: TSN), Hormel Foods Corp. (NYSE: HRL) and Pilgrim's Pride Corp. (NASDAQ: PPC) well-positioned for growth.
About the Industry The Zacks Food – Meat Products industry comprises companies that manufacture, process, market, distribute and sell a wide range of meat products like chicken, pork, beef, prepared food and plant-based meats. Some companies also offer poultry and turkey products, alongside providing nutritional food products and supplements, desserts and drink mixes and industrial gelatin products.
Most companies offer their products to retail and foodservice customers, while some cater to deli and commercial operators, including grocery retailers, grocery wholesalers, meat distributors, warehouse club stores, industrial food processing companies, chain restaurants, international export companies, school cafeterias and hospitals, among others. Some products offered include frozen whole chicken, primary pork cuts, salads, sandwiches and meatballs.
Major Trends Shaping the Future of the Meat Food IndustryProtein Consumption on the Rise, Plant-Based Meat Surges: The growing preference for protein-rich diets has been a boon for meat companies, prompting them to continuously innovate their product offerings. This trend is fueled by heightened health consciousness among consumers, especially fitness enthusiasts embracing high-protein diets like keto. In recent years, the popularity of meatless alternatives and plant-based meat substitutes has been steadily increasing, driven by consumers' preference for fresh, healthier options over traditional meat products.
Most plant-based food alternatives are well-regarded for their reduced reliance on artificial ingredients and additives, making them a wholesome choice. These alternatives also serve as valuable sources of protein for those following vegan dietary practices. Industry experts believe that plant-based protein could lead to significant disruptions in the traditional meat market.
Dynamic Expansion Strategies: Industry players are actively diversifying their product ranges and strengthening market positions through strategic alliances, acquisitions and capacity expansions. Efforts include ramping up manufacturing capabilities through new facilities, plant expansions and partnerships with co-manufacturers. Concurrently, select companies are making investments in automation technology, with a keen focus on accelerating the digitalization process. Additionally, some players are directing their efforts toward entering international markets, a strategy that is yielding favorable results.
Beef Segment Challenges: The beef segment has been battling numerous challenges in 2024, including consumer caution, economic uncertainties, shifting preferences and reduced production. The segment is likely to continue witnessing consumer caution due to the sluggish global economic recovery post the pandemic. Consumers, particularly, are shifting toward value-for-money products over premium ones due to heightened caution. This is likely to dampen demand for more expensive cuts of beef, leading to soft sales and revenues for producers.
Additionally, the beef segment is undergoing a significant decline in production, which is resulting in elevated retail prices for consumers. The reduced production is likely to put pressure on beef processors, leading to challenges in maintaining profitability throughout the supply chain.
Zacks Industry Rank Indicates Bright Prospects The Zacks Food – Meat Products industry is housed within the broader Zacks Consumer Staples sector. The industry currently carries a Zacks Industry Rank #6, which places it in the top 2% of more than 250 Zacks industries.
The group's Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates robust near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry's positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group's earnings growth potential. Since the beginning of January 2024, the industry's earnings estimate for the current fiscal year earnings has jumped 15.1%.
Given the industry's impressive prospects, we present a few stocks that you may want to consider for your portfolio. However, before that, it's worth taking a look at the industry's performance and current valuation.
Industry vs. Broader Market The Zacks Food – Meat Products industry has outperformed the broader Zacks Consumer Staples sector while underperforming the S&P 500 over the past year.
The industry has declined 4.2% over this period compared with the broader sector's decrease of 12.3%. Meanwhile, the S&P 500 has witnessed an increase of 22.4%.
Industry's Current Valuation On the basis of forward 12-month price-to-earnings (P/E), which is commonly used for valuing Consumer Staple stocks, the industry is currently trading at 18.91X compared with the S&P 500's 20.4X and the sector's 16.82X.
Over the past five years, the industry has traded as high as 21.76X and as low as 12.24X, with the median being 17.05X.
3 Meat Food Stocks to Keep a Close Eye OnPilgrim's Pride: Key strategic initiatives, such as facility expansions and investments in technology, have been playing a pivotal role in strengthening PPC's position in the market. Pilgrim's Pride's focus on key customers is a pathway for refining its portfolio and creating competitive advantages.
Apart from this, this Zacks Rank #1 (Strong Buy) company has been steadily augmenting the marketing support of its brands as they expand and enter new regions. This provider of fresh, frozen and value-added chicken and pork products continues to explore M&A opportunities to further diversify its portfolio across segments and geographies. Additionally, it resorts to frequent supply-chain improvements to enhance efficiency and reduce costs.
The Zacks Consensus Estimate for Pilgrim's Pride's current fiscal year EPS has risen by 1.3% over the past 30 days to $3.01. This suggests growth of 78.1% from the prior-year reported figure. Shares of PPC have surged 46.1% in the past six months.
Hormel Foods: This Zacks Rank #2 (Buy) company has been benefiting from the impressive execution of strategic priorities. These include pursuing solid global expansion, emphasizing the One Supply Chain initiative and continuing the ongoing transformation and modernization of the business, among others. In addition, Hormel Foods' long-standing relationships, differentiated product portfolio, innovative solutions and impressive sales team are fueling growth in the Foodservice business. The company has also been benefiting from its prudent buyouts and efforts to boost capacity.
The Zacks Consensus Estimate for Hormel Foods' current fiscal year EPS has risen by a penny over the past 30 days to $1.59. Shares of HRL have increased 9.4% in the past six months.
Tyson Foods: The company operates across Beef, Pork, Chicken and Prepared Foods segments while exploring alternative meat and protein sources as part of its diversification strategy. This Zacks Rank #3 (Hold) company has been showcasing resilience amid industry hurdles with its iconic brand portfolio for sustained market share growth and consumer resonance.
Strategic investments in brand building and innovation reinforce Tyson Foods' leadership position, driving long-term loyalty. The meat products giant has been benefiting from its three main pillars, which include driving growth across the core protein platform, fueling growth through its robust brands and focusing on prudent international expansion.
Operational excellence remains another upside, with initiatives like plant closures and digitalization. These upsides are likely to continue working well for Tyson Foods and help it battle the expected challenges in the Beef segment due to limited cattle supply. The Zacks Consensus Estimate for TSN's fiscal 2024 earnings per share (ETF:EPS) has decreased by 0.9% over the past 30 days to $2.33. Shares of TSN have rallied 27.2% in the past six months.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index
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