The food industry is stable and growing, fueled by changing consumer preferences, sustainability trends, increased online sales, and rising demand for local, organic, and convenience-based products. Given this backdrop, investing in fundamentally strong food stocks like US Foods Holding Corp. (USFD) and Sysco Corporation (SYY) could be wise for consistent returns.
Despite geopolitical uncertainties and supply chain disruptions, rising incomes, a growing population, and technological advancements in food processing, innovative distribution, and automation boost the resilience of the food industry. This makes it a strong investment opportunity for stable returns. The food market's output is projected to reach $3.70 trillion in 2024, and grow at an 1.1% CAGR from 2024 to 2029.
In addition, marketing in the food industry drives revenue through digital strategies like social media engagement, influencer partnerships, personalized content, and e-commerce optimization. Similarly, data analytics enhance brand visibility and customer loyalty, boosting sales and market growth. Hence, the U.S. food market is projected to generate $833.80 billion in 2024, with an expected annual growth rate of 4.1%.
Given this favorable backdrop, let’s take a closer look at the fundamentals of the two featured Food Makers stocks, beginning with the second choice.
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 14.13x is 4.5% lower than the 14.80x industry average. Its 0.95x forward non-GAAP PEG is 55.7% lower than the 2.14x industry average. Similarly, its 10.85x forward EV/EBITDA is marginally lower than the 10.88x industry average.
During 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 September 30, 2024, to increase 18.9% and 6.8% year-over-year to $0.83 and $9.72 billion, respectively. Over the past year, the stock has gained 45.7% to close the last trading session at $58.48.
USFD’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 an A grade for Growth and a B for Value. It is ranked #16 out of 74 stocks in the B-rated Food Makers industry. To see USFD’s Momentum, Stability, Sentiment, and Quality ratings, click 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 0.61x is 65.5% lower than the 1.78x industry average. Its 13.64x forward EV/EBIT is 7.9% lower than the 14.80x industry average. Likewise, its 16.86x forward non-GAAP P/E is 5.6% lower than the 17.86x 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 9.9% over the past year to close the last trading session at $77.14.
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 #13 in the Food Makers industry. To access the additional ratings of SYY for Growth, Momentum, and Sentiment, click here.
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SYY shares were trading at $77.16 per share on Friday afternoon, down $0.42 (-0.54%). Year-to-date, SYY has gained 7.67%, versus a 18.73% 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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