Despite lingering macroeconomic headwinds, the food maker industry continues to perform well as food enjoys a steady demand. Growing food consumption amid rapid population growth globally coupled with several technological advancements, the industry’s growth prospects appear bright.

Given the industry’s promising outlook, investing in fundamentally strong food maker stocks Sysco Corporation (SYY), US Foods Holding Corporation (USFD), and Lifeway Foods, Inc. (LWAY) could be ideal investments in the upcoming year.

Food is considered a necessity since it is essential for human survival. This means that demand for food is relatively inelastic, as an increase in price will not lead to a considerable drop in demand since consumers have no choice but to purchase the food. Due to stable demand for food products, the food maker industry tends to perform well regardless of economic conditions.

As per Statista, the food market is projected to reach $3.12 trillion, growing at a CAGR of 6.7% from 2023 to 2028. Meanwhile, the U.S. food market is anticipated to grow at a CAGR of 3.8% during the forecast period (2023-2028). Demand in the market is driven by food consumption, which depends on population growth.

An increasing number of millennials opting for at-home and healthy meals and a growing shift toward nutritious food to sustain a healthy lifestyle is boosting the demand for specialty foods. The market size of global specialty foods is expected to total $361.30 billion by 2027, expanding at a CAGR of 13.4%.

The food manufacturing industry is rapidly transforming with the adoption of technology and automation. Several benefits of digitalization in the food industry include enhanced operational efficiency and supply chain visibility.

Digital technologies, like sensors, blockchain, and RFID, are being adopted to track food products, manage inventory, and reduce waste, resulting in an efficient supply chain. Other technologies, such as IoT and AI, can improve transparency, enhance quality control and food safety, provide accurate forecasts for inventory management and more within the food industry.

Given these favorable trends, let’s look at the fundamentals of the top three Food Makers stocks, beginning with the third choice.

Stock #3: US Foods Holding Corporation (USFD)

USFD markets, sells, and distributes fresh, frozen, and dry food and non-food products to food service customers. Its customers include independently owned single and multi-unit restaurants, regional concepts, national restaurant chains, hospitals, etc.

In terms of forward Price/Sales, USFD is trading at 0.31x, 73.4% lower than the industry average of 1.17x. Likewise, the stock’s forward Price/Book multiple of 2.32 is 19.2% lower than the industry average of 2.87. Also, its forward Price/Cash Flow of 8.58x is 36.5% lower than the industry average of 13.52x.

For the third quarter that ended September 30, 2023, USFD’s net sales grew 2.1% year-over-year to $9.11 billion. The company’s gross profit increased 5.6% from the year-ago value to $1.54 billion. Its operating income came in at $230 million, up 7.4% from the prior year’s quarter. Its adjusted EBITDA rose 14.5% from the prior year’s period to $402 million.

Furthermore, the company’s cash and cash equivalents as of September 30, 2023, were $346 million, compared to $211 million as of December 31, 2022.

USFD updated its fiscal year 2023 guidance. The company expects adjusted EBITDA of $1.54-$1.56 billion and adjusted EPS of $2.60 - $2.70.

Street expects USFD’s EPS and revenue for the fourth quarter (ending December 2023) to increase 20.7% and 3.4% year-over-year to $0.66 and $8.80 billion, respectively. Also, the company topped the consensus EPS estimates in each of the trailing four quarters, which is impressive.

Shares of USFD have gained 32.8% year-to-date and 30.9% over the past year to close the last trading session at $45.30.

USFD’s robust outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

USFD has a B grade for Growth, Stability, and Value. It is ranked #5 out of 79 stocks in the Food Makers industry.

In addition to the POWR Ratings I’ve just highlighted, you can see USFD’s ratings for Momentum, Sentiment, and Quality here.

Stock #2: Lifeway Foods, Inc. (LWAY)

LWAY produces and markets probiotic-based products internationally. Its primary product is drinkable kefir, a cultured dairy product in various organic and non-organic sizes, flavors, and types. It also provides European-style soft cheeses, creams, and other products. LWAY sells its products under the Lifeway, Glen Oaks Farms, and Fresh Made brand names.

On August 23, LWAY announced plans to expand its cheese production, and investments in technology that will cut production time by more than half.

The company will implement new automation and efficiency plans to ensure the brand is well-equipped for future demand and potential distribution opportunities as it takes up a series of marketing and advertising initiatives to introduce Lifeway Farmer Cheese to vast audiences.

In terms of forward P/E, LWAY is trading at 18.29x, 5.3% lower than the industry average of 19.32x. The stock’s forward EV/Sales multiple of 1.15 is 32.1% lower than the industry average of 1.69. Moreover, its forward EV/EBIT of 11.40x is 25.8% lower than the industry average of 15.37x.

During the third quarter ended September 30, 2023, LWAY’s net sales increased 7.2% year-over-year to $40.90 million. The company’s gross profit increased 46.8% from the year-ago value to $11.14 million. Its net income and earnings per share grew 247.1% and 283.3% from the previous year’s quarter to $3.41 million and $0.23, respectively.

In addition, the company’s cash and cash equivalent came in at $12.63 million as of September 30, 2023, compared to $4.44 million as of December 31, 2022

Analysts expect LWAY’s revenue and EPS for the fourth quarter (ending December 2023) to increase 11.6% and 320% year-over-year to $40 million and $0.21, respectively. Moreover, the company has an impressive earnings surprise history as it surpassed the consensus revenue estimate in three of the trailing four quarters.

LWAY’s shares have surged 94.6% over the past six months and 137.2% year-to-date to close the last trading session at $13.33.

LWAY’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.

The stock has an A grade for Growth and B for Sentiment and Quality. Within the Food Makers industry, LWAY is ranked #3 out of 79 stocks.

Click here to access additional ratings of LWAY for Value, Momentum, and Stability.

Stock #1: Sysco Corporation (SYY)

SYY markets and distributes food and related products to the food service or food-away-from-home industry internationally. The company operates through U.S. Foodservice Operations; International Foodservice Operations; SYGMA; and Other segments.

On November 29, SYY launched its One Planet. One Table. assortment, the foodservice industry’s largest offering of certified and sustainably focused products. The assortment includes more than  3,000 items across 15 categories that are backed by one of 20+ leading sustainability certifications and standards.

One Planet. One Table. represents another endeavor of Sysco’s commitment to lead the industry towards a more sustainable future.

On October 11, SYY announced that it would acquire Edward Don & Company (DON), a leading distributor of food service equipment, supplies, and disposables. This acquisition will allow SYY to add new strategic capabilities and diversified offerings which complements its existing business.

“We’re thrilled to announce our plans to acquire Edward Don & Company, a leader in the equipment and supplies industry for over 100 years,” said Kevin Hourican, Sysco’s President and Chief Executive Officer.

In terms of forward non-GAAP P/E, SYY is trading at 17.02x, 6.8% lower than the industry average of 18.26x. The stock’s forward EV/Sales multiple of 0.61 is 64.1% lower than the industry average of 1.69. In addition, its forward Price/Book of 13.59x is 373.2% lower than the industry average of 2.87x.

In the fiscal 2024 first quarter that ended September 30, 2023, SYY’s sales increased 2.6% year-over-year to $19.60 billion. Its gross profit grew 2.8% year-over-year to $3.60 billion. Its adjusted EBITDA rose 11.7% from the year-ago value to $1 billion.

Also, the company’s adjusted net earnings and earnings per share came in at $541.60 million and $1.07, up 9.9% and 10.3% from the previous year’s quarter, respectively.

The company reiterated its guidance for fiscal year 2024. SYY expects mid-single digit sales growth to about $80 billion and 5%-10% adjusted EPS growth to $4.20 to $4.40.

Analysts expect SYY’s revenue for the fiscal 2024 second quarter (ending December 2023) to increase 4% year-over-year to $19.34 billion. Likewise, the company’s EPS for the same quarter is estimated to grow 9.7% from the prior year to $0.88.

SYY’s stock has gained 1.8% over the past month to close the last trading session at $73.33.

SYY’s POWR Ratings reflect its promising outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.

The stock has a B grade for Growth, Value, Stability, and Sentiment. SYY is ranked #2 of 79 stocks within the Food Makers industry.

To see additional POWR Ratings of SYY for Quality and Momentum, click here.

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SYY shares were trading at $73.15 per share on Wednesday morning, down $0.18 (-0.25%). Year-to-date, SYY has declined -1.68%, versus a 26.33% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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