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Pilgrim’s Pride Corporation (PPC), ConAgra Foods, Inc. (CAG), Hormel Foods Corporation (HRL): Transforming Trends Are Your Portfolio’s Best Friend

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The trend is your friend is what you want to hear about your stock pick helping a stock soar or even triple like Pilgrim’s Pride Corporation (NASDAQ:PPC), a poultry producer. ConAgra Foods, Inc. (NYSE:CAG), a North American packaged-food company, and Hormel Foods Corporation (NYSE:HRL), best known for Spam, are two larger companies, but one doesn’t have the trend in its corner.

We love our chicken
Pilgrim’s Pride Corporation (NASDAQ:PPC) sells its packaged chicken and turkey products in supermarkets and to food-service businesses much like ConAgra Foods, Inc. (NYSE:CAG). Its price-to-sales ratio of 0.48 is less than its industry average at approximately 0.7, but it has a smallish market cap of $4.12 billion and has almost quadrupled in the last year. Its PEG of 0.78 is another indication of plenty of growth ahead.

Pilgrim's Pride Corporation (NASDAQ:PPC)Things are cooking at Pilgrim’s Pride Corporation (NASDAQ:PPC) with Moody’s reviewing an upgrade for the poultry company saying, “The review for upgrade reflects PPC’s strengthening operating performance, the significant amount of debt repaid over the past year through free cash flow, and Moody’s expectation that the operating environment of the U.S. chicken processing industry will remain favorable during most of the next 12 months.”

Revenue and EPS have been steadily climbing as the chart below shows. The reason why is simple: US meat consumption is trending down as poultry consumption trends higher, with the average family substituting one or more weekly meals with poultry instead of red meat. As a National Beef Board study proved, more women working equated to less beef (and more chicken) cooking. See an illustrative Freakonomics infograhics here.

More and more meals are eaten away from home and plenty of that is fast-food chicken. Tailwinds are blowing for Pilgrim’s Pride Corporation (NASDAQ:PPC) consumer and food-service divisions.The company’s food-service clients include: Yum! Brands, Wendy’s, and another consumer staple, ConAgra Foods, Inc. (NYSE:CAG).

growth rates chart
EARNINGS PER SHARE (Trailing 12 Quarters)
growth rates chart

We love private label
ConAgra Foods, Inc. (NYSE:CAG) looks good against several industry average ratios: price to sales is 0.9, compared to an industry average of 1.5, and other ratios like price to book, 2.5 to the industry’s 4.4, are also good. But there’s one thing that looks great, and that’s a dividend yield of 3%.

Paying $0.85 for a dollar’s worth of ConAgra’s sales with that yield is a real bargain. ConAgra has a lower P/S and a lower PEG of approximately 1.3 compared to larger competitor Kraft Foods‘ P/S of 1.72 and PEG of 2.92. ConAgra Foods, Inc. (NYSE:CAG) offers well-known brands including Slim Jim, Orville Redenbacher, Banquet, and Chef Boyardee for a total of 48 consumer brands found in 97% of American kitchens.

The company operates in three segments: Consumer Foods, Commercial Foods, and the newly acquired Ralcorp making it the largest private-label-brand food business in the US, producing pastas, cereals, mayonnaise, chocolate, cookies, crackers, and peanut butter. The Ralcorp buy was called “transforming” as private-label brands have outperformed consumer brands for the last three years.

Like Pilgrim’s Pride Corporation (NASDAQ:PPC), ConAgra Foods, Inc. (NYSE:CAG) has admirably rising revenue and EPS charts. All well and good, but Ralcorp is why you want in. While there have been adjustments to EPS due to the purchase, in its fourth quarter results the company announced it “currently expects cost-related synergies resulting from the Ralcorp acquisition to reach $300 million of annual pre-tax benefit by fiscal 2017,” an increase from prior estimates of $225 million.

In fiscal year 2013, the company generated $1.4 billion in cash flow from operations and paid down $400 million in debt.However, on September 10, the company pre-announced a downward revision for diluted EPS and the EPS growth rate for the fiscal year 2014, from $2.40 to a range of $2.34-$2.38, and growth to come in a range of 8%-10% based on weakness in its Consumer Foods segment.

The stock plunged almost 10% on huge volume, but Goldman Sachs upgraded the stock the very next day to Buy with a price target of $42 based on the strength of their Private Label business.

Revenue (Trailing-12 Quarters)
growth rates chart
EARNINGS PER SHARE (Trailing 12 Quarters)
growth rates chart
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