The Zacks Food – Meat Products industry players have been benefiting from consumers’ growing demand for protein due to rising health awareness. The increased demand for plant-based meat has also prompted companies to expand in this arena. To this end, companies’ focus on innovation and capacity expansion has been aiding.
While increased manufacturing costs and supply-chain disruptions are lingering concerns, capacity-expansion endeavors and efficient pricing actions keep Hormel Foods Corporation HRL, Tyson Foods, Inc. TSN and Beyond Meat, Inc. BYND well-placed.
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 also 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 Industry
Demand for Protein, Plant-Based Meat Gains Popularity: The demand for protein-packed food has been rising due to consumers’ growing health consciousness. Consumers, especially fitness enthusiasts, have been adopting protein-rich, ketogenic diets. The increasing demand for protein has been working well for meat product companies, which have been focused on strengthening their portfolio through constant innovation. Meatless meat or plant-based meat products have been gaining popularity over the past few years. Consumers’ rising inclination toward trying new products and their greater health consciousness have also been driving the demand for substitutes for traditional meat products. Most plant-based food alternatives are touted to contain fewer artificial ingredients and preservatives, thus making them quite healthy. These food options are also considered a useful source of protein by people who practice vegan dining. Industry experts believe that plant-based protein may emerge as a major disruptor in the conventional meat market. The growing demand for plant-based food, especially meat alternatives, has led many companies to invest significantly in this arena.
Expansion Endeavors on Track: Companies in the industry are striving to expand their portfolio and market presence through strategic partnerships, acquisitions and capacity expansions. To this end, companies have been exploring opportunities to increase manufacturing capacity, which includes opening new manufacturing units, making expansions at existing plants and partnering with co-manufacturers. Some companies are also undertaking automation technology investments, including accelerating digitalization. Moreover, some companies, like Beyond Meat and Hormel Foods, have been focused on unlocking international potential, which is yielding favorable results.
Cost Woes Persist: The increased cost of inputs remains a concern for many players in the meat food industry. Companies are witnessing a spike in the prices of raw materials, packaging and supplies, freight and logistics and labor. They have been incurring increased costs of corn, soybean meal, feed ingredients and live animals, which have been hurting margins. Several companies expect inflationary pressure to persist, which is likely to keep margins under pressure.
Zacks Industry Rank Indicates Solid Prospects
The Zacks Food – Meat Products industry is housed within the broader Zacks Consumer Staples sector. The industry currently carries a Zacks Industry Rank #123, which places it in the top 49% 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 strong 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.
Given the industry’s bright 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 underperformed the broader Zacks Consumer Staples sector and the S&P 500 over the past year.
The industry has declined 31% over this period against the broader sector’s growth of 4.6%. Meanwhile, the S&P 500 saw an increase of 7%.
One-Year Price Performance
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 19.16X compared with the S&P 500’s 18.77X and the sector’s 18.32X.
Over the past five years, the industry has traded as high as 19.16X and as low as 11.41X, with the median being 15.45X as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
3 Meat Food Stocks to Keep a Close Eye On
Hormel Foods: This Zacks Rank #3 (Hold) company has been benefiting from its efforts to boost capacity. Additionally, prudent buyouts have been working well for the company. In addition, Hormel Foods’ One Supply Chain initiative has centralized operations, logistics and sourcing decisions to fuel efficiencies for the company. The modernization of its technology and e-commerce abilities, the formation of the Digital Experience Group and transformational efforts at Jennie-O Turkey Store bode well. Per the last earnings call, HRL projects fiscal 2023 net sales in the range of $12.6-$12.9 billion, indicating 1-3% growth from the fiscal 2022 level. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Hormel Foods’ sales for the current fiscal year suggests growth of around 1% from the figure reported in the year-ago period. The consensus mark for earnings has dipped by a penny over the past seven days. Shares of HRL have decreased 20.4% in the past six months.
Price and Consensus: HRL
Tyson Foods: This meat food company has been gaining from strategic growth efforts, including a focus on protein-packed brands and capacity-expansion endeavors. Tyson Foods operates in the Beef, Pork, Chicken, and Prepared Foods segments and has been venturing into alternative sources of meat and protein products. The Zacks Consensus Estimate for TSN’s current fiscal-year sales indicates a rise of 1.2% from the prior-year reported figure. The consensus mark for Tyson Foods’ earnings has dipped by 19.3% over the past seven days. Shares of the company have declined 25% in the past six months. This Zacks Rank #3 company is constantly looking for ways to improve its cost structure.
Price and Consensus: TSN
Beyond Meat: A strong base of retail and foodservice customers, along with the rising popularity of plant-based meats, has been working well for this Zacks Rank #3 company. This manufacturer, marketer and seller of plant-based meat products has been gaining from its strong product portfolio, especially due to its focus on innovation. Apart from expanding its portfolio, Beyond Meat is benefiting from efforts to strengthen its distribution network and e-commerce capabilities.
The Zacks Consensus Estimate for Beyond Meat’s bottom line for the current fiscal year suggests growth of 44.5% from the figure reported in the year-ago period. The consensus mark for the bottom line has improved from a loss of $3.24 per share to a loss of $3.19 over the past seven days. Shares of BYND have declined 14% in the past six months.
Price and Consensus: BYND
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