In 2023, revenue in the food market is expected to amount to $996.40 billion and is expected to grow at a CAGR of 3.4% between 2023-2027. Also, rising food prices should support growth. Food prices increased by 0.3% in December 2022.
In addition, the rapid development in technology, dynamic changes in consumers’ preferences, and regulatory bodies have boosted the demand for food quality and safety, resulting in the growing adoption of automated systems in the food industry. As a result, the global market for Food Automation is projected to reach a revised size of $15.10 billion by 2030, growing at a CAGR of 4.9%.
However, the food industry faces headwinds from uncertainties related to persistently high inflation, geopolitical issues, and a looming recession. Moreover, the food businesses continue to face margin pressure from rising costs.
While we think food maker stocks, Sysco Corporation (SYY) and US Foods Holding Corp. (USFD), are solid buys, Utz Brands, Inc. (UTZ), Smart for Life, Inc. (SMFL) might be best avoided considering their weak fundamentals.
Stocks to Buy:
Sysco Corporation (SYY)
SYY engages in the marketing and distribution of various food and related products primarily to the food service or food-away-from-home industry in the United States, Canada, the United Kingdom, France, and internationally. It operates through U.S. Foodservice Operations; International Foodservice Operations; SYGM; and Other segments.
Its forward EV/Sales of 0.66x is 62.9% lower than the industry average of 1.79x. Its forward Price/Sales multiple of 0.51 is 57.4% lower than the industry average of 1.21.
SYY pays $1.96 annually as dividends. This translates to a yield of 2.54% at the current price, compared to the 4-year average dividend yield of 2.41%. Its dividend payments have grown at a CAGR of 6.2% and 7.5% over the past three and five years, respectively.
SYY’s non-GAAP sales increased 16% year-over-year to $18.93 billion in the second quarter, which ended December 31, 2022. The company’s non-GAAP gross profit increased 18.2% year-over-year to $3.42 billion, while its non-GAAP operating income rose 37.8% year-over-year to $682.99 million. Also, its non-GAAP EPS increased 40.4% year-over-year to $0.80.
Analysts expect its revenue to be $18.44 billion, indicating a 9.1% year-over-year growth for the fiscal third quarter ending March 2023. The company’s EPS for the same quarter is expected to increase 30.9% from the prior-year quarter to $0.93. Additionally, it has topped consensus revenue estimates in each trailing four quarters, which is impressive.
The stock has gained marginally over the past month to close the last trading session at $77.13.
SYY’s POWR Ratings reflect its promising outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
SYY also has a B grade for Stability, Growth, and Value. It is ranked #5 out of 82 stocks in the B-rated Food Makers industry.
To access additional ratings for SYY’s Sentiment, Quality, and Momentum, click here.
US Foods Holding Corp. (USFD)
USFD markets and distributes 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, regional concepts, national restaurant chains, hospitals, nursing homes, hotels and motels, country clubs, government and military organizations, colleges and universities, and retail locations.
On February 1, USFD announced the addition of two transformative technology offerings to its CHECK Business Tools program: Bear Robotics and 7shifts, aligned with the growing trend of automated solutions for addressing labor challenges.
Its CHECK Business Tools program provides food service operators with a growing suite of technology solutions designed to help drive traffic, simplify staffing and reduce waste. This innovation aligns with the growing trend of the industry and should help the company navigate through existing labor problems of the industry.
USFD’s forward EV/Sales of 0.41x is 77.2% lower than the industry average of 1.79x. Its forward Price/Sales multiple of 0.25 is 79.1% lower than the industry average of 1.21.
For the fiscal 2022 third quarter ended October 1, 2022, USFD’s net sales increased 13% year-over-year to $8.92 billion. Its net income per share grew 79.2% year-over-year to $0.43. In addition, the company’s non-GAAP EBITDA increased 34.1% year-over-year to $311 million.
USFD’s revenue is expected to rise 11.5% year-over-year to $8.52 billion for the fourth fiscal quarter that ended December 2022. The company’s EPS for the same quarter is expected to increase 40.4% year-over-year to $0.53. Additionally, it has topped consensus revenue estimates in three of the trailing four quarters.
Shares of USFD have gained 33.2% over the past three months to close the last trading session at $38.28.
USFD’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. It has a B grade for Growth, Value, and Sentiment. Within the same industry, it is ranked #4.
Beyond what is stated above, we’ve also rated USFD for Stability, Quality, and Momentum. Get all USFD ratings here.
Stocks to Avoid:
Utz Brands, Inc. (UTZ)
UTZ operates as a snack food manufacturing company. It offers a range of salty snacks, including potato chips, kettle chips, tortilla chips, pretzels, cheese snacks, veggie snacks, pork skins, pub/party mixes, salsa and queso, ready-to-eat popcorn, and other snacks.
UTZ’s forward EV/Sales of 2.19x is 22.2% higher than the industry average of 1.79x. Its forward non-GAAP P/E multiple of 32.88 is 71.8% higher than the industry average of 19.14.
UTZ’s adjusted net income declined 13.8% year-over-year to $22.50 million for the third quarter that ended October 02, 2022. The company’s adjusted earnings per share declined 11.1% year-over-year to $0.16. Its interest expense increased 50.8% year-over-year to $11.65 million.
Analysts expect UTZ’s EPS to decline 5.3% year-over-year to $0.51 for the fiscal year 2022. Its revenue is expected to come in at $1.39 billion for the same year.
The stock has declined 2.8% over the past six months to close its last trading session at $16.81.
UTZ’s POWR Ratings reflect this bleak outlook. The stock has an overall D rating, equating to a Sell in our proprietary rating system. UTZ is graded a D in Value, Sentiment, and Quality. It is ranked #73 in the same industry.
Get UTZ’s ratings for Growth, Stability, and Momentum here.
Smart for Life, Inc. (SMFL)
SMFL acquires, develops, manufactures, operates, markets, and sells nutraceutical and related products in the United States and internationally. It offers natural health and wellness meal replacement products.
In terms of the trailing-12-month Price/Book, SFML’s multiple of 3.19 is 23% higher than the industry average of 2.59.
During the fiscal third quarter that ended September 30,2022, SMFL’s gross profit amounted to $2.6 million. However, its adjusted EBITDA loss amounted to $923.97 million, while its net loss stood at $1.94 billion for the same quarter.
The stock has plunged 74.9% over the past nine months to close the last trading session at $0.21.
SMFL has an overall rating of D, which translates to a Sell in our POWR Ratings system. It also has an F grade for Stability and a D for Quality. It is ranked #80 in the same industry.
Click here to see the POWR Ratings of SMFL for Growth, Value, Momentum, and Sentiment.
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SYY shares were trading at $76.82 per share on Friday afternoon, down $0.31 (-0.40%). Year-to-date, SYY has gained 1.13%, versus a 8.09% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
2 Food Maker Stocks to Buy Right Now and 2 to Avoid StockNews.com
