The demand for food products remains relatively stable regardless of economic conditions, making the food maker industry less susceptible to significant downturns.
Against the volatile macroeconomic backdrop, I have highlighted three fundamentally robust food maker stocks, Sysco Corporation (SYY), US Foods Holding Corp. (USFD), and SpartanNash Company (SPTN), that seem poised for success, given their strong growth potential and discounted valuation.
But before delving deeper into the fundamental aspects of the featured stocks, let us look at a few factors that could shape the food industry’s future.
The global food services market is projected to grow from $2.65 trillion in 2023 to a significant value of $5.42 trillion, exhibiting an impressive 10.8% CAGR during the forecasted period. The key factors fueling this growth include increasing urbanization, changing consumer lifestyles, and rising disposable incomes.
Further, the food market is also heavily influenced by the growing popularity of adopting digital technologies and automated systems in the food service industry.
Over the next five years, the food automation market is projected to experience a CAGR of 7.4%, ultimately reaching a value of $33.45 billion by 2028. Additionally, automated systems have played a crucial role in enhancing food processing techniques, improving taste, texture, and longer shelf life for food products.
Investing in the food maker industry could be a wise decision for investors due to its defensive nature, technological advancements, and innovative ways to adapt to customers’ needs and preferences. Therefore, one could consider investing in stocks such as SYY, USFD, and SPTN to boost portfolio returns.
That said, let us now dig deeper into the fundamentals of the featured stocks:
Sysco Corporation (SYY)
SYY is engaged in marketing and distributing various food and related products, primarily to the food service or food-away-from-home industry worldwide. It operates through U.S. Foodservice Operations; International Foodservice Operations, SYGMA; and other segments.
On June 27, SYY announced the availability of its e-commerce platform Sysco Shop, in the Spanish language. This development reflects SYY’s commitment to making the shopping experience more convenient and personalized for its customers.
Judy Sansone, SYY’s Executive Vice President and Chief Commercial Officer, commented, “Digital transformation is foundational to Sysco’s Recipe for Growth strategy, which aims to enhance and modernize our customers’ overall experience.”
In the same month, FreshPoint, a specialty produce company owned by SYY, revealed its plans to acquire BIX Produce, a prominent distributor specializing in produce and fresh-cut products.
The acquisition serves FreshPoint's strategic goals of expanding its presence in new regions, enhancing its specialty product offerings, and adding a custom, high-quality 200,000 sq. ft. production and warehouse facility to its operations.
In terms of forward non-GAAP PEG multiple, SYY is trading at 0.60x, 76.3% lower than the industry average of 2.54x. Its forward EV/Sales multiple of 0.64 is 61.2% lower than the industry average of 1.65. Also, its forward Price/Sales multiple of 0.50 is 53.5% lower than the industry average of 1.07.
For the third quarter of fiscal 2023 (ended April 1, 2023), SYY’s sales increased 11.7% year-over-year to $18.88 billion, while its gross profit rose 13.9% from the year-ago value to $3.43 billion.
The company’s non-GAAP net earnings and non-GAAP EPS amounted to $460.52 million and $0.90, up 26.9% and 26.8% from the prior-year quarter. Also, its non-GAAP operating income grew 27.9% from the year-ago value to $735.71 million.
Street expects SYY’s revenue and EPS for the fourth quarter (ended June 30, 2023) to increase 5.2% and 15.4% year-over-year to $19.95 billion and $1.33, respectively. Moreover, the company surpassed the revenue estimates in each of the trailing four quarters, which is excellent.
Additionally, its revenue and EBITDA have grown at CAGRs of 8.3% and 5.9% over the past three years, respectively. Over the same period, its net income and EBIT have also increased at CAGRs of 4.1% and 6.9%, respectively.
Over the past month, the stock has gained 3.7% to close the last trading session at $75.30.
SYY’s POWR Ratings reflect this robust outlook. The stock has an overall A rating, translating to a Strong 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 Growth, Value, Momentum, Stability, and Quality. In the 81-stock Food Makers industry, it is ranked first. Click here to see SYY’s rating for Sentiment.
US Foods Holding Corp. (USFD)
USFD markets and distributes fresh, frozen, and dry food and non-food products to independently owned single and multi-unit restaurants, regional concepts, national restaurant chains, hospitals, nursing homes, hotels and motels, country clubs, and retail locations in the United States.
On May 19, USFD announced its agreement to acquire Renzi Foodservice, a broad-line distributor based in Watertown, New York. This acquisition should extend USFD’s operations into central upstate New York and enhance its operative capability.
In the same month, USFD announced its plans to launch new USFD CHEF’STORE® locations in Roanoke, Virginia, and Greenville and Fayetteville in North Carolina. With these three new locations, USFD will have a robust network of more than 90 CHEF'STORE locations across 13 states. This expansion reflects the company's growing footprint and is expected to attract new customers.
USFD’s forward non-GAAP PEG of 0.14x is 94.6% lower than the 2.54x industry average. Its forward EV/Sales multiple of 0.44 is 73.1% lower than the industry average of 1.65. Also, its forward Price/Sales ratio of 0.30x is 71.6% lower than the industry average of 1.07x.
USFD’s net sales increased 9.5% year-over-year to $8.54 billion for the first quarter (ended April 1, 2023), while its gross profit grew 19.2% from the year-ago value to $1.43 billion. The company’s adjusted net income and EPS increased 56.3% and 38.9% from the prior-year quarter to $125 million and $0.50, respectively. Also, its non-GAAP EBITDA rose 121.7% from the year-ago value to $286 million.
The consensus EPS estimate of $0.75 for the second quarter (ended June 30, 2023) represents a 12.3% improvement year-over-year. The consensus revenue estimate of $9.31 billion for the same period indicates a 5.5% increase from the prior-year period. Additionally, the company surpassed the revenue estimates in three of the trailing four quarters.
Over the past three years, USFD’s revenue and net income have grown at CAGRs of 9.9% and 24.8%, respectively. Likewise, its levered FCF and EPS have improved at CAGRs of 16.4% and 18.7% over the same period, respectively.
USFD’s shares have gained 63.9% over the past nine months to close the last trading session at $44.19.
USFD’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has an A grade for Growth and a B for Value, Momentum, and Sentiment. Within the same industry, it is ranked #2. Click here to see the additional ratings for USFD (Stability and Quality).
SpartanNash Company (SPTN)
SPTN distributes and retails grocery products through its Wholesale and Retail segments. Its Wholesale segment’s offerings include grocery and perishable food products, such as dry groceries, produce, dairy products, meat, delicatessen items, etc. While its Retail segment operates retail supermarkets, pharmacies, fuel centers, and convenience stores.
On January 5, SPTN acquired Great Lakes Foods, an independent grocery wholesaler. This acquisition included the 300,000-square-foot distribution center located in Menominee, Michigan.
SPTN’s Executive Vice President and Chief Strategy and Information Officer, Masiar Tayebi, emphasized that the acquisition of Great Lakes Foods demonstrates its continued dedication to optimizing its supply chain network, fostering growth through geographical expansion, and improving customer service and efficiency.
In terms of forward non-GAAP PEG, the stock is trading at 1.12x, 55.9% lower than the industry average of 2.54x. Its forward Price/Sales multiple of 0.08 is 92.6% lower than the industry average of 1.07. Additionally, its forward EV/Sales ratio of 0.16 is 90.2% lower than the industry average of 1.65x.
In the fiscal first quarter that ended April 22, 2023, SPTN’s net sales increased 5.2% year-over-year to $2.91 billion, while its adjusted EBITDA rose marginally from the year-ago value to $76.77 million.
During the same period, the company’s net earnings came in at $11.34 million and $0.33 per share. In addition, its total current liabilities amounted to $634.22 million, declining 10% compared to $704.97 million as of December 31, 2022.
Analysts expect SPTN’s revenue and EPS for the third quarter (ending September 2023) to increase 2.9% and 7.8% year-over-year to $2.36 billion and $0.59, respectively. Moreover, the company surpassed the revenue and EPS estimates in three of the trailing four quarters, which is promising.
Its revenue and net income have grown at CAGRs of 3.4% and 24.8% over the past three years, respectively. Likewise, its EPS has improved at a CAGR of 25.1% over the same period.
The stock has gained 2.3% over the past month to close the last trading session at $22.96.
It’s no surprise that SPTN has an overall rating of B, which equates to Buy in our proprietary rating system. It has a B grade for Growth and Value. Out of 81 stocks in the same industry, it is ranked #18.
In addition to the POWR Ratings we’ve stated above, we also have SPTN’s ratings for Momentum, Stability, Sentiment, and Quality. Get all SPTN ratings here.
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SYY shares were trading at $75.30 per share on Tuesday morning, up $1.10 (+1.48%). Year-to-date, SYY has declined -0.24%, versus a 16.92% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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