The food industry remains strong as rising incomes and a growing population drive demand. Changing trends, health awareness, technological advancements and consistent demand are building the industry’s resilience. Despite geopolitical uncertainties and supply chain disruptions, automation and sustainability efforts are keeping the industry thriving.
With this in mind, it may make sense to invest in fundamentally strong food stocks such as Performance Food Group Company (PFGC), US Foods Holding Corp. (USFD) and Sysco Corporation (SYY). These stocks have price targets 15% above their current levels and offer attractive valuations.
This year, the food industry is thriving with trends such as plant-based foods, sustainable packaging, and innovative flavors. Increased demand for health-focused, eco-friendly products, versatile ingredients, and waste reduction is driving further growth. The food market output is expected to reach $3.70 trillion in 2024 and grow at a compound annual growth rate of 1.1% through 2029.
Furthermore, automation improves the food industry by increasing efficiency, reducing labor costs, and ensuring consistent production. Robots continuously perform repetitive tasks, solve labor shortages, and speed up processes, while modular solutions improve scalability and responsiveness. The food industry automation market is expected to reach $113.91 billion by 2031, growing at a compound annual growth rate of 11%.
Let’s now take a closer look at the fundamental data of the three food maker stocks presented, starting with the third choice.
Stock #3: Performance Food Group Company (PFGC)
PFGC and its subsidiaries market and distribute food and food-related products in the United States. The company operates in three segments: Foodservice, Vistar and Convenience.
On May 10, 2024, PFGC’s OLM Food Solutions launched Hot Stuff Kitchen Stuffed Bites, expanding its snack offerings. The new product line features multiple flavors and doughs designed for convenience and taste to meet the growing demand for on-the-go snacking.
In terms of forward non-GAAP P/E, PFGC’s forward non-GAAP P/E of 15.27 is 11.3% below the industry average of 17.22. Its forward non-GAAP PEG of 0.94 is 57.2% below the industry average of 2.20. Likewise, its forward EV/EBITDA of 9.97 is 6.2% below the industry average of 10.62.
For the first fiscal quarter ended March 30, 2024, PFGC’s net sales were $13.86 billion, up slightly year-over-year. Likewise, adjusted EBITDA increased 1.9% year-over-year to $320.70 million. In addition, the company’s net income was $70.40 million and adjusted diluted earnings per share was $0.80.
Analysts expect PFGC’s earnings per share and revenue for the quarter ending June 30, 2024 to rise 20% and 2.6% year-over-year to $1.37 billion and $15.25 billion, respectively. PFGC’s stock has gained 7.6% over the past year, closing the last trading session at $64.39. Analysts’ average price target of $79 suggests 22.7% upside potential.
PFGC’s positivity is reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system. POWR Ratings evaluate stocks based on 118 different factors, each with its own weighting.
It has a B rating for Value. It ranks 26th out of 76 stocks in the B-rated Food industry. Click here to see PFGC’s ratings for Growth, Momentum, Stability, Sentiment and Quality.
Stock #2: US Foods Holding Corp. (US Air Force)
USFD markets, sells and distributes fresh, frozen, dry and non-food food products to food service customers throughout the United States. The company’s customers include independent single-family and multi-family restaurants, national restaurant chains, hospitals, hotels and motels, country clubs, government and military organizations, colleges and universities, and retail stores.
In terms of forward EV/EBIT, USFD’s 12.95 is 12.5% below the industry average of 14.80. Likewise, its forward non-GAAP P/E of 16.46 is 4.5% below the industry average of 17.22. Furthermore, its forward EV/sales ratio of 0.45 is 74.1% below the industry average of 1.76.
For the second quarter ended June 29, 2024, USFD’s net revenue increased 7.7% year-over-year to $9.71 billion. The company’s adjusted gross profit increased 8.2% year-over-year to $1.71 billion. Likewise, adjusted EBITDA increased 13.2% year-over-year to $489 million.
During the same period, operating income was $353 million, up 9.6% from the same quarter last year. In addition, USFD’s adjusted net income and adjusted earnings per share increased 16.1% and 17.7% year-over-year to $231 million and $0.93, respectively.
Street expects USFD’s earnings per share and revenue for the quarter ending June 30, 2024 to rise 17.3% and 6.2% year-over-year, to $0.93 billion and $9.58 billion, respectively. Over the past nine months, the stock has gained 22.7%, closing the last trading session at $51.10. Analysts’ average price target of $64.36 suggests 26% upside potential.
USFD’s POWR Ratings reflect strong prospects. The company has an overall rating of B, which equates to a Buy in our proprietary scoring system.
In the same industry, it ranks 18th. It has a B grade for Growth, Value, and Stability. In addition to the POWR Ratings scores I just highlighted, you can see USFD’s ratings for Momentum, Sentiment, and Quality here.
Stock No. 1: Sysco Corporation (SY)
SYY and its subsidiaries are engaged in the marketing and distribution of various food and related products to the food service and out-of-home markets worldwide. The company operates through US Foodservice Operations, International Foodservice Operations, SYGMA and Other segments.
In terms of forward EV/sales ratio, SYY’s 0.60 is 65.9% below the industry average of 1.76. Its forward EV/EBIT ratio of 13.33 is 10% below the industry average of 14.80. Likewise, its forward non-GAAP PEG ratio of 2.04 is 7.5% below the industry average of 2.20.
SYY’s revenue increased 4.2% year-over-year to $20.56 billion for the second fiscal quarter ended June 29, 2024. The company’s non-GAAP operating income was $1.08 billion, up 6.4% year-over-year. In addition, non-GAAP net income increased 1.5% year-over-year to $693 million and non-GAAP earnings per share increased 3.7% year-over-year to $1.39.
For the quarter ending September 30, 2024, SYY’s earnings per share and revenue are expected to increase 5.7% and 4.4% year-over-year, to $1.13 billion and $20.48 billion, respectively. The stock has beaten consensus earnings per share estimates over the past four quarters. The stock has gained 11.4% over the past nine months, closing the last trading session at $75.25. The average analyst price target of $85.67 suggests 13.9% upside potential.
It’s no surprise that SYY has an overall rating of B, which equates to a Buy in our POWR Ratings system.
It has a B grade for value, stability and quality. It is ranked 8th in the Food industry. Click here to see SYY’s additional ratings for growth, momentum and sentiment.
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SYY stock closed at $76.14 per share on Thursday afternoon, up $0.89 (+1.18%). Year-to-date, SYY has gained 6.25%, while the benchmark S&P 500 index has gained 12.27% over the same period.
About the author: Abhishek Bhuyan
Abhishek started his professional career as a financial journalist due to his keen interest in identifying the fundamental factors that influence the future performance of financial instruments. More…
