Despite the recessionary fears raised by high inflation and consecutive rate hikes, food demand remains robust due to inelasticity. As food stocks are often considered excellent defensive investments, I think fundamentally strong Kellogg Company (K), Want Want China Holdings Limited (WWNTY), and Glanbia plc (GLAPY) are worth adding to your watchlists.
The food sector is expanding with advanced procedures, increased dining out spending, and a growing preference for fast food consumption. According to Statista, food market revenue will amount to $9.24 trillion in 2023 and is expected to grow at 7.3% CAGR until 2028.
Also, the U.S. packaged food market is expected to expand at a CAGR of 4.8% until 2030, driven by consumers’ hectic work and life schedules and the rising preference for convenience. Also, increasing innovations in food packaging, plant-based products, bold flavors, and healthy ingredients are significant industry drivers.
In addition, food makers are increasingly adopting automation technologies such as robotics, the Internet of Things (IoT), data analytics, digital twins, and artificial intelligence, which should contribute to the industry’s growth.
Let us look deeper into the fundamentals of the featured stocks.
Kellogg Company (K)
K manufactures snacks and convenience foods in 21 countries and markets its products in 180 countries. Its principal products include crackers, crisps, savory snacks, toaster pastries, cereal bars, granola bars and bites, ready-to-eat cereals, frozen waffles, veggie foods, and noodles.
K’s trailing-12-month levered FCF of 5.02% is 68.5% higher than the industry average of 2.98%. Its trailing-12-month ROCE of 21.31% is 105.4% higher than the industry average of 10.38%.
K has paid dividends for 33 consecutive years. Over the last three years, K’s dividend payouts have grown at 1.2% CAGR. K’s four-year average dividend yield is 3.53%. Its forward annual dividend of $2.36 translates to a 3.53% yield.
K’s net sales increased 10.4% year-over-year to $4.05 billion in the first quarter that ended April 1, 2023. Its total current assets came in at $4.32 billion for the period that ended April 1, 2023, compared to $4.19 billion for the period that ended December 31, 2022.
Also, its total current liabilities came in at $6 billion, compared to $6.35 billion for the same period.
The consensus revenue estimate of $16.47 billion for the year ending December 2024 represents a 2% increase year-over-year. Its EPS is expected to grow 4.9% year-over-year to $4.30 for the same period. It surpassed EPS estimates in all four trailing quarters.
K’s shares have gained 2.7% over the past three months to close the last trading session at $66.83.
K’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
K has a B for Stability and Quality. It is ranked #15 out of 80 stocks in the B-rated Food Makers industry. Click here for the additional POWR Ratings for Momentum, Sentiment, Growth, and Value for K.
Want Want China Holdings Limited (WWNTY)
Headquartered in Kowloon Bay, Hong Kong, WWNTY is an investment holding company that manufactures, distributes, and sells food and beverages. The company operates through four segments: Rice Crackers; Dairy Products and Beverages; Snack Foods; and Other Products.
WWNTY’s trailing-12-month gross profit and EBITDA margins of 42.94% and 22.78% are 36.9% and 129.6% higher than the industry averages of 31.36% and 9.92%, respectively.
WWNTY has paid dividends for 13 consecutive years. Over the last three years, WWNTY’s dividend payouts have grown at 2% CAGR. WWNTY’s four-year average dividend yield is 4.57%. Its forward annual dividend of $1.62 translates to a 3.61% yield.
WWNTY’s total current liabilities came in at RMB8.62 billion ($1.26 billion) for the period that ended September 30, 2022, compared to RMB9.25 billion ($1.35 billion) for the period that ended December 31, 2022. Also, its total liabilities came in at RMB12.03 billion ($1.76 billion), compared to RMB13.15 billion ($1.92 billion) for the same period.
Street expects WWNTY’s revenue to increase 6.1% year-over-year to $3.54 billion in 2024. WWNTY’s shares have declined marginally intraday to close the last trading session at $31.62.
It’s no surprise that WWNTY has an overall B rating, equating to a Buy in our POWR Ratings system. It has an A grade for Stability and a B grade for Quality. It is ranked #13 in the same industry.
Beyond what is stated above, we’ve also rated WWNTY for Growth, Value, Sentiment, and Momentum. Get all WWNTY ratings here.
Glanbia plc (GLAPY)
Headquartered in Kilkenny, Ireland, GLAPY operates as a nutrition company worldwide. The company manufactures and sells sports nutrition and lifestyle nutrition products in various formats and ready-to-drink beverages through various channels, such as specialty retail, online, and gyms, as well the food, drug, mass, and club channels.
GLAPY’s trailing-12-month levered FCF of 7.87% is 164% higher than the industry average of 2.98%. Its trailing-12-month ROTA of 6.67% is 62.9% higher than the industry average of 4.10%.
GLAPY has paid dividends for nine consecutive years. Over the last three years, GLAPY’s dividend payouts have grown at 5.1% CAGR. GLAPY’s four-year average dividend yield is 2.41%. Its forward annual dividend of $2.12 translates to a 2.85% yield.
In the year ended December 31, 2022, GLAPY’s revenue increased 34.4% year-over-year to €5.64 billion ($6.11 billion). Its profit increased 53.4% year-over-year to €256.80 million ($278.13 million). Also, its EPS came in at €92.24, up 60.8% year-over-year.
Analysts expect GLAPY’s revenue to increase 2.4% year-over-year to $5.94 billion for the year ending December 2024. The stock has gained 43.1% over the past three months to close the last trading session at $74.37.
GLAPY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #11 in the same industry. It has an A grade for Stability and a B for Value. To see additional GLAPY’s rating for Momentum, Quality, Sentiment, and Growth, click here.
What To Do Next?
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K shares fell $1.26 (-1.89%) in premarket trading Wednesday. Year-to-date, K has declined -5.54%, versus a 12.46% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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