The food industry stays strong with rising income and a growing population driving demand. Changing trends, health consciousness, technological advancements, and consistent demand boost the industry’s resilience. Despite geopolitical uncertainties and supply chain disruptions, automation and sustainability efforts keep the industry thriving.
Given this backdrop, it may be prudent to invest in fundamentally strong food stocks such as Performance Food Group Company (PFGC), US Foods Holding Corp. (USFD), and Sysco Corporation (SYY). These stocks have price targets that are 15% above their current levels and offer attractive valuations.
This year, the food industry thrives with trends like plant-based foods, sustainable packaging, and innovative flavors. Increased demand for health-focused, eco-friendly products, versatile ingredients, and waste reduction drive further growth. The output in the food market is projected to reach $3.70 trillion in 2024, and grow at a 1.1% CAGR until 2029.
Furthermore, automation enhances the food maker industry by boosting efficiency, reducing labor costs, and ensuring consistent production. Robots handle repetitive tasks continuously, solving labor shortages and speeding up processes, while modular solutions enhance scalability and responsiveness. The food industry automation market is projected to reach $113.91 billion by 2031, growing at a 11% CAGR.
Now, let’s take a closer look at the fundamentals of the three featured Food Makers stocks, beginning with the third choice.
Stock #3: Performance Food Group Company (PFGC)
PFGC and its subsidiaries market and distribute food and food-related products in the United States. It operates through three segments: Foodservice, Vistar, and Convenience.
On May 10, 2024, PFGC’s OLM Food Solutions launched Hot Stuff Kitchen Stuffed Bites, expanding its snack offerings. The new line features various flavors and doughs designed for convenience and taste to meet the growing demand for on-the-go snacks.
In terms of forward non-GAAP P/E, PFGC’s 15.27x is 11.3% lower than the 17.22x industry average. Its 0.94x forward non-GAAP PEG is 57.2% lower than the 2.20x industry average. Similarly, its 9.97x forward EV/EBITDA is 6.2% lower than the 10.62x industry average.
In the fiscal first quarter ended March 30, 2024, PFGC’s net sales amounted to $13.86 billion, up marginally year-over-year. Similarly, its adjusted EBITDA rose 1.9% year-over-year to $320.70 million. Additionally, the company’s net income was $70.40 million, and its adjusted diluted EPS stood at $0.80.
Analysts expect PFGC’s EPS and revenue for the quarter ended June 30, 2024, to increase 20% and 2.6% year-over-year to $1.37 and $15.25 billion, respectively. PFGC’s stock has gained 7.6% over the past year to close the last trading session at $64.39. The average analyst price target of $79 indicates a 22.7% upside potential.
PFGC’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, translating to a Buy in our proprietary rating system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Value. It is ranked #26 out of 76 stocks in the B-rated Food Makers industry. To see PFGC’s Growth, Momentum, Stability, Sentiment, and Quality ratings, click here.
Stock #2: US Foods Holding Corp. (USFD)
USFD engages in the marketing, sale, and distribution of fresh, frozen, and dry food and non-food products to food service customers in the United States. The company’s customers include independently owned single and multi-unit restaurants, national restaurant chains, hospitals, hotels and motels, country clubs, government and military organizations, colleges and universities, and retail locations.
In terms of forward EV/EBIT, USFD’s 12.95x is 12.5% lower than the 14.80x industry average. Likewise, its 16.46x forward non-GAAP P/E is 4.5% lower than the 17.22x industry average. Also, its 0.45x forward EV/Sales is 74.1% lower than the 1.76x industry average.
For the second quarter ended June 29, 2024, USFD’s net sales grew 7.7% year-over-year to $9.71 billion. The company’s adjusted gross profit increased 8.2% from the year-ago value to $1.71 billion. Likewise, its adjusted EBITDA rose 13.2% from the prior year’s period to $489 million.
For the same period, its operating income was $353 million, up 9.6% from the prior-year quarter. Moreover, USFD’s adjusted net income and adjusted EPS rose 16.1% and 17.7% from the year-ago value to $231 million and $0.93, respectively.
Street expects USFD’s EPS and revenue for the quarter ended June 30, 2024, to increase 17.3% and 6.2% year-over-year to $0.93 and $9.58 billion, respectively. Over the past nine months, the stock has gained 22.7% to close the last trading session at $51.10. The average analyst price target of $64.36 indicates a 26% upside potential.
USFD’s POWR Ratings reflect strong prospects. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It is ranked #18 in the same industry. It has a B grade for Growth, Value, and Stability. In addition to the POWR Ratings grades I’ve just highlighted, you can see USFD’s ratings for Momentum, Sentiment, and Quality, here.
Stock #1: Sysco Corporation (SYY)
SYY and its subsidiaries engage in the marketing and distribution of various food and related products to the food service or food-away-from-home industry internationally. It operates through U.S. Foodservice Operations, International Foodservice Operations, SYGMA, and Other segments.
In terms of forward EV/Sales, SYY’s 0.60x is 65.9% lower than the 1.76x industry average. Its 13.33x forward EV/EBIT is 10% lower than the 14.80x industry average. Likewise, its 2.04x forward non-GAAP PEG is 7.5% lower than the 2.20x industry average.
SYY’s sales for the fiscal second quarter ended June 29, 2024, grew 4.2% year-over-year to $20.56 billion. The company’s non-GAAP operating income was $1.08 billion, up 6.4% from the year-ago value. In addition, its non-GAAP net earnings increased 1.5% from the previous year’s quarter to $693 million, and non-GAAP earnings per share rose 3.7% year-over-year to $1.39.
For the quarter ending September 30, 2024, SYY’s EPS and revenue are expected to increase 5.7% and 4.4% year-over-year to $1.13 and $20.48 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. The stock has gained 11.4% over the past nine months to close the last trading session at $75.25. The average analyst price target of $85.67 indicates a 13.9% upside potential.
It’s no surprise that SYY has an overall rating of B, which translates to a Buy in our POWR Ratings system.
It has a B grade for Value, Stability, and Quality. It is ranked #8 in the Food Makers industry. To access the additional ratings of SYY for Growth, Momentum, and Sentiment, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
SYY shares were trading at $76.14 per share on Thursday afternoon, up $0.89 (+1.18%). Year-to-date, SYY has gained 6.25%, versus a 12.27% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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