Following the Federal Reserve’s 75 basis points rate hike last month, officials are now backing another sharp interest rate hike in July. Meanwhile, recession worries have ramped up due to the central bank’s aggressive stance. Furthermore, Goldman slashed its second-quarter GDP outlook from a 1.9% increase to just 0.7%.
Consumers turn their spending toward necessary items like consumer staples during challenging economic environments. Hence, defensive stocks like staples usually hold their ground in a recessionary backdrop.
On top of it, the food market is expected to grow annually by 6.7% between 2022 and 2027, and the market is projected to witness a volume growth of 4.9% in 2023.
Therefore, we think the fundamentally strong food makers Pilgrim's Pride Corporation (PPC) and Sanderson Farms, Inc. (SAFM) might be solid buys amid the rising odds of a recession.
Pilgrim's Pride Corporation (PPC)
PPC produces, processes, and markets fresh and frozen chicken and pork products to retailers, distributors, and food service operators, which consists of chain restaurants, food processors, broad-line distributors, and other institutions.
For the fiscal first quarter ended March 27, PPC’s net sales increased 29.5% year-over-year to $4.24 billion. Adjusted net income attributable to PPC rose 178.7% from the prior-year quarter to $287.15 million. Adjusted net income attributable to PPC per common share 181% from the same period the prior year to $1.18.
The consensus EPS estimate of $1.06 for the quarter ended June 2022 indicates a 68.3% year-over-year increase. Likewise, the consensus revenue estimate for the same quarter of $4.29 billion reflects an improvement of 30.3% from the prior-year period. Moreover, PPC has an impressive surprise earnings history, as it has topped consensus EPS estimates in three out of the trailing four quarters.
The stock has gained 40.7% over the past year and 8.9% year-to-date to close its last trading session at $30.71.
PPC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
PPC has a Growth grade of A and a Sentiment and Quality grade of B. In the 88-stock Food Makers industry, it is ranked #5. The industry is rated B. Click here to see the additional POWR Ratings for PPC (Value, Momentum, and Stability).
Sanderson Farms, Inc. (SAFM)
SAFM is a poultry processing company that produces, processes, markets, and distributes fresh and frozen chickens under its brand name to retailers and other distributors. The company also sells other processed foods.
On April 21, SAFM declared a regular quarterly dividend of $0.44 per share, which was payable to shareholders on May 17. This reflects upon the company’s cash generation and shareholder return ability.
For the fiscal quarter ended April 30, SAFM’s net sales increased 35.8% year-over-year to $1.54 billion. Net income and EPS came in at $321.19 million and $14.39, up 231.4% and 231.6% from the same period the prior year.
Street EPS estimate for the quarter ending October 2022 of $10.39 indicates a 26.1% year-over-year rise. Likewise, Street revenue estimate for the same quarter of $1.64 billion reflects an increase of 16.7% from the prior-year quarter. In addition, SAFM has topped consensus EPS estimates in each of the trailing four quarters, which is impressive.
Over the past year, SAFM’s stock has gained 14.4% and 12% year-to-date to close its last trading session at $213.95.
It’s no surprise that SAFM has an overall A rating, which translates to Strong Buy in our POWR Rating system. The stock has an A grade for Growth and Quality and a B for Value. It is ranked #3 in the Food Makers industry.
To see the additional POWR Ratings for Momentum, Stability, and Sentiment for SAFM, click here.
PPC shares were trading at $30.25 per share on Friday morning, down $0.46 (-1.50%). Year-to-date, PPC has gained 7.27%, versus a -17.50% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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