The Zacks Food – Meat Products industry players have been leveraging the increased consumer interest in protein due to a rising focus on health. The upswing in demand for plant-based meat substitutes has also driven these companies to expand their presence in this market. To achieve this, they have been concentrating on innovation and enhancing their production capacities, which has yielded positive results.
While worries about input cost inflation continue, the initiatives to expand capacity and implement effective pricing strategies position Pilgrim’s Pride Corporation (PPC – Free Report) and Beyond Meat, Inc. (BYND – Free Report) in a favorable light.
About the Industry
The Zacks Food – Meat Products industry comprises companies that manufacture, process, market, distribute and sell a wide range of meat products like chicken, pork, beef, prepared food and plant-based meats. Some companies also offer poultry and turkey products, alongside providing nutritional food products and supplements, desserts and drink mixes and industrial gelatin products. Most companies offer their products to retail and foodservice customers, while some cater to deli and commercial operators, including grocery retailers, grocery wholesalers, meat distributors, warehouse club stores, industrial food processing companies, chain restaurants, international export companies, school cafeterias and hospitals, among others. Some products offered include frozen whole chicken, primary pork cuts, salads, sandwiches and meatballs.
Major Trends Shaping the Future of the Meat Food Industry
Protein Demand Rises, Plant-Based Meat Gains Traction: The growing appetite for protein-rich food is proving to be a boon for meat product companies, which have consistently improved their product offerings through innovative approaches. The rising demand for protein-packed products is driven by the increasing health awareness among consumers, with fitness enthusiasts increasingly adopting high-protein ketogenic diets. In recent years, the popularity of meatless alternatives and plant-based meat substitutes has been steadily increasing, driven by consumers’ preference for fresh, healthier options over traditional meat products. Most plant-based food alternatives are well-regarded for their reduced reliance on artificial ingredients and additives, making them a wholesome choice. These alternatives also serve as valuable sources of protein for those following vegan dietary practices. Industry experts believe that plant-based protein could lead to significant disruptions in the traditional meat market.
Robust Expansion Strategies: Companies in the industry are actively engaged in initiatives aimed at diversifying their product portfolios and fortifying their position in the market through strategic collaborations, acquisitions and capacity expansion efforts. As part of these endeavors, businesses are looking for opportunities to bolster their manufacturing capabilities, such as establishing new production facilities, enlarging existing plants and entering into partnerships with co-manufacturers. Concurrently, select companies are making investments in automation technology, with a keen focus on accelerating the digitalization process. Additionally, some players are directing their efforts toward entering international markets, a strategy that is yielding favorable results.
Ongoing Cost Challenges: High input costs have been a persistent issue for numerous participants in the meat food space, though the trend is moderating. Companies have been incurring elevated costs associated with raw materials, packaging, supplies, freight and logistics and labor. The continuation of inflationary pressures, along with increased operating expenditure, may strain margins.
Zacks Industry Rank Indicates Robust Prospects
The Zacks Food – Meat Products industry is housed within the broader Zacks Consumer Staples sector. The industry currently carries a Zacks Industry Rank #92, which places it in the top 37% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates impressive near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Since the beginning of October 2023, the industry’s earnings estimate for the current fiscal year has risen by a penny.
Given the industry’s solid prospects, we present a few stocks that you may want to consider for your portfolio. However, before that, it’s worth taking a look at the industry’s performance and current valuation.
Industry vs. Broader Market
The Zacks Food – Meat Products industry has underperformed the broader Zacks Consumer Staples sector and the S&P 500 over the past year.
The industry has declined 25.2% over this period compared with the broader sector’s decrease of 4.4%. Meanwhile, the S&P 500 has witnessed an increase of 17.2%.
One-Year Price Performance
Industry’s Current Valuation
On the basis of forward 12-month price-to-earnings (P/E), which is commonly used for valuing Consumer Staple stocks, the industry is currently trading at 17.21X compared with the S&P 500’s 18.51X and the sector’s 16.53X.
Over the past five years, the industry has traded as high as 21.76X and as low as 12.24X, with the median being 16.5X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
2 Meat Food Stocks to Keep a Close Eye On
Pilgrim’s Pride: Pilgrim’s Pride’s focus on key customers is a pathway for refining its portfolio and creating competitive advantages. Apart from this, this Zacks Rank #1 (Strong Buy) company has been steadily augmenting the marketing support of its brands as they expand and enter new regions. This provider of fresh, frozen and value-added chicken and pork products continues to explore M&A opportunities to further diversify its portfolio across segments and geographies. Additionally, it resorts to frequent supply-chain improvements to enhance efficiency and reduce costs.
The Zacks Consensus Estimate for Pilgrim’s Pride’s earnings for the current fiscal year suggests a decline of 59.3% from the figure reported in the year-ago period. However, the consensus mark for earnings indicates an increase of 9.7% over the past 30 days. Shares of PPC have rallied 15.4% in the past six months.
Price and Consensus: PPC
Beyond Meat: The rising demand for plant-based meat and a strong set of retail and foodservice customers have been working well for this Zacks Rank #2 (Buy) company. As a manufacturer, marketer and vendor of plant-based meat alternatives, the company has been experiencing gains from its strong product portfolio, especially due to its focus on innovation. Other than expanding its product range, Beyond Meat is benefiting from its initiatives to strengthen its distribution network and bolster e-commerce proficiency.
The Zacks Consensus Estimate for Beyond Meat’s bottom line for the current fiscal year suggests growth of 39.7% from the figure reported in the year-ago period. The consensus mark for the bottom line has remained unchanged at a loss of $3.47 per share over the past 30 days. Shares of BYND have declined 46.2% in the past six months.
Price and Consensus: BYND