The November inflation report came in cooler than expected. The consumer price index (CPI) increased by just 0.1% over the previous month and 7.1% year-over-year, compared to economists’ estimates of 0.3% and 7.3%, respectively. On the other hand, food prices climbed 0.5% month-over-month and were 10.6% higher than a year ago.
While inflation has shown signs of easing, the Fed indicated to keep increasing interest rates throughout this year. The consecutive rate hikes could tip the economy into a recession. Regardless of economic conditions, food manufacturers face stable demand as people don’t cut down on their spending on essentials, such as food, utilities, or rent.
The global food and beverages market is expected to grow at a CAGR of 8.7%, reaching $8.91 trillion by 2026.
Given this backdrop, we think fundamentally strong food makers stocks Sysco Corporation (SYY) and Campbell Soup Company (CPB) could be wise additions to your portfolio.
Sysco Corporation (SYY)
SYY markets and distributes numerous meals and associated products, primarily to the food service or food-away-from-home sector in the United States, Canada, the UK, France, and abroad. It operates through U.S. Foodservice Operations; International Foodservice Operations; SYGMA; and Other segments.
For the fiscal 2023 first quarter ended October 1, 2022, SYY’s sales increased 16.2% year-over-year to $19.13 billion, while its gross profit grew 17.4% from the year-ago value to $3.49 billion. Its operating income rose 16.3% from the prior year’s quarter to $734.33 million.
In addition, the company’s net earnings increased 23.2% year-over-year to $465.57 million, and its EPS stood at $0.91, up 24.7% from the previous year’s quarter.
On November 17, SYY's Board of Directors declared a regular quarterly cash dividend of $0.49 per share, payable on January 27, 2023, to common stockholders of record on January 6, 2023. The company has raised its dividends for seven consecutive years.
It pays a $1.96 per share dividend annually, which translates to a 2.58% yield on the current price. SYY’s dividend payments have grown at a CAGR of 7.8% over the past five years, and its four-year average dividend yield is 2.41%.
The consensus EPS estimate of $4.15 for the current fiscal year (ending June 2023) indicates a 27.7% year-over-year improvement. Likewise, the consensus revenue estimate of $76.13 billion for the same year indicates a rise of 10.9% from the previous year.
Furthermore, the company’s EPS and revenue for the next fiscal year are expected to increase 14.3% and 4% year-over-year to $4.74 and $79.14 billion, respectively. The stock has gained marginally intra-day to close the last trading session at $76.68.
SYY’s POWR Ratings reflect its strong outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
The stock has an A grade for Growth and a B for Value and Stability. Within the Food Makers industry, it is ranked #5 of 82 stocks.
Beyond what we stated above, we also have SYY’s ratings for Quality, Sentiment, and Momentum. Get all SYY ratings here.
Campbell Soup Company (CPB)
CPB manufactures and sells food and beverages both domestically and internationally. The business operates through Meals & Beverages; and Snacks segments. It distributes its goods through retail food chains, big-box retailers, club shops, drug stores, and e-commerce stores.
On September 26, CPB launched FlavorUp! cooking concentrate, a new innovative product line that enriches regular cooking with just one tablespoon and is available in three different variations. At-home cooking occasions remain above pre-pandemic levels, with 41% of customers saying they eat out less to save money.
The brand may benefit from this introduction since it appeals to younger customers who value delicious meals that can still be made on a limited budget and with little to no time left over without sacrificing elevated flavor.
For the fiscal 2023 first quarter ended October 30, 2022, CPB’s total sales increased 15.2% year-over-year to $2.58 billion, and its total operating earnings grew 18.6% year-over-year to $484 million. The company’s net earnings rose 13.8% from the prior year’s quarter to $297 million, and its EPS came in at $0.99, up 15.1% year-over-year.
On November 30, CPB's Board of Directors declared a regular quarterly dividend of $0.37 per share on CPB's capital stock, payable on January 30, 2023, to shareholders of record as of the close of business on January 5, 2023.
The company pays a $1.48 per share dividend annually, which translates to a 2.63% yield on the current price. Its four-year average dividend yield is 3.00%
Analysts expect CPB’s EPS for the current fiscal year (ending July 2023) to increase 5.2% year-over-year to $3.00. Moreover, the company’s revenue for the same year is expected to grow 8.1% from the prior year to $9.26 billion. Furthermore, CPB has surpassed its consensus EPS estimate in three of the four trailing quarters, which is impressive.
The stock has gained 5% over the past month and 15.6% over the past six months to close the last trading session at $55.76.
CPB’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 has a B grade for Quality. Within the Food Makers industry, it ranks #27 of 82 stocks.
Beyond what we stated above, we also have CPB’s ratings for Momentum, Stability, Sentiment, Growth, and Value. Get all CPB ratings here.
SYY shares were trading at $76.50 per share on Thursday morning, down $0.18 (-0.23%). Year-to-date, SYY has gained 0.07%, versus a -0.63% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
2 Food Makers Stocks That Hit the Sweet Spot StockNews.com
