Using a stock screener is a lot like panning for gold. After screening over 4,000 food and beverage stocks on criteria of a minimum four star CAPS rating, yield over 2.5%, and Wall Street outperforms, three names come up shining: Cal-Maine Foods Inc (NASDAQ:CALM) , B&G Foods, Inc. (NYSE:BGS) and Pinnacle Foods Inc (NYSE:PF). I was fully expecting to see names like General Mills, Inc. (NYSE:GIS) or McCormick & Company, Incorporated (NYSE:MKC).
Defensives have run like rabbits as investors seek protection from a market correction. Maybe with extended P/Es after so much market love that's why big caps PepsiCo, Inc. (NYSE:PEP), Campbell Soup Company (NYSE:CPB), Kellogg Company (NYSE:K), and The J.M. Smucker Company (NYSE:SJM) didn't make the screen.
Panning for Pinnacle
The three that came through are small to mid-caps with B&G Foods, Inc. (NYSE:BGS) a direct rival to Pinnacle Foods Inc (NYSE:PF). Pinnacle only debuted on March 28 to much fanfare for a canned and frozen food stock. You're probably familiar with its products, found in 85% of US households. Their leadership brands are Mrs. Butterworth's syrup, Vlasic pickles, Duncan Hines, and Aunt Jemima.
Pinnacle Foods Inc (NYSE:PF)'s trailing P/E is a pricey 41.74 and the forward P/E is 15.34. This one may only be gold plated as that P/E shouldn't have made it through the screen. Also, the stock has run 15% since its IPO when it opened at $22.15.
However, as promised, the company plans to pay a dividend with a 3% yield with some of the IPO proceeds as well as paying down debt. And it has a lot of debt, $1.8 billion remaining after the $580 million proceeds when Blackstone took them public. Blackstone still owns 70% of the common stock.
Analysts expect 8.50% revenue growth for the next year with 2013 revenues of $2.45 billion and $2.52 billion in 2014. Stifel Nicolaus initiated coverage with a Buy on May 6. The median price target is $27.00 which doesn't leave much room for upside having closed at $25.46 on May 17. Trading at 1.15 price/sales, Pinnacle is lower than the industry's 1.74 and with a1.39 PEG, compared to General Mills, Inc. (NYSE:GIS) at 2.41, it's not a terrible value but that debt load is hard to swallow.
The company has grown in the past by acquisition, acquiring Birds Eye Frozen Foods and Armour canned meats. Its targets are usually unloved underperformers which it then gives a makeover and some marketing support.
Feisty and growing
That model is identical to B&G Foods, Inc. (NYSE:BGS), a better stock in my opinion, with a 3.80% yield and a five star CAPS rating. It has built an impressive roster of brands, just on May 7 acquiring True North nut snacks from DeMet's for an undisclosed sum. Other brands you likely have in your pantry are their Ortega tacos and salsas or some of its other 30 brands like Polaner spreads and Cream of Wheat.
It's beginning to extend into personal care having acquired Culver Specialty brands (hair and body care) from Unilever N.V. (ADR) (NYSE:UN) and so will have another big cap rival, Procter & Gamble, besides other big cap food conglomerates like Mondelez International, The J.M. Smucker Company (NYSE:SJM), and PepsiCo, Inc. (NYSE:PEP) for its food division.
Their model, like Pinnacle Foods Inc (NYSE:PF), is to take downtrodden food companies, under $100 million, and spiff them up and promote them heavily. Case in point is Cream of Wheat which they bought and added Cinnabon and chocolate varieties and promoted with coupons and social media. Also, brands they acquire are shelf-stable (an advantage over Pinnacle Foods Inc (NYSE:PF)) and expected to be immediately accretive or no sale.