Stifel's Top Food Stocks

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/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, Dean Foods Co DF, Kellogg Co K, Treehouse Foods Inc THS, Post Holdings Inc POST 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 earnings and a 14 percent Y/Y drop in Campbell Soup Co’s CPB 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, General Mills Inc GIS, Treehouse, and Kraft.