In a new report, analysts at Stifel took a look at food stocks and gave their updated outlook for the group. Here’s a breakdown of what they had to say.
Neutral Outlook
Overall, analysts have a neutral outlook for food stocks based on current premium valuations and “average” growth forecasts. Food stocks are currently priced at a 24 percent premium to the S&P 500.
Analysts believe that the announcement of the Kraft Foods Group Inc KRFT 0.15%/Heinz merger in Q1 helped support premium valuations in the space.
Fundamentals
Analysts are predicting 3 percent earnings growth for food stocks in 2015. Low fuel prices and international growth will likely to continue to help large American companies. Analysts are calling for a 50 bps increase in gross margins for food stocks this year as well.
In-line Q1
Analysts don’t see any big surprises from the group this earnings season. Stifel’s earnings estimates for The Hershey Co HSY 3.46%, Dean Foods Co DF, Kellogg Co K 0.2%, Treehouse Foods Inc THS 0.16%, Post Holdings Inc POST 0.27% and Kraft are “a penny or so off from consensus.”
Analysts are calling for a 2 percent year-over-year (y/y) earnings per share (EPS) decline for large-cap food companies in Q1. They predict a 17 percent Y/Y decline in The J.M. Smucker Co’s SJM 0.82% earnings and a 14 percent Y/Y drop in Campbell Soup Co’s CPB 0.09% Q1 EPS.
Top Picks
Analysts advise investors to “remain selective in their food exposure.” Stifel’s top stock picks are The WhiteWave Foods Co WWAV 0.31%, General Mills Inc GIS 0.14%, Treehouse, and Kraft.
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