When the markets are choppy, investing in the diversified food companies with modest yields is a good strategy. People need to consume, which ensures a relatively stable top line for food companies like H.J. Heinz Company (NYSE:HNZ), ConAgra Foods, Inc. (NYSE:CAG) and Unilever plc (ADR) (NYSE:UL). These companies may not offer staggering growth, but investors looking for steady and stable returns over time, should consider investing in this industry.
Heinz is one of the largest food based companies with a presence in over 200 countries. With prominent names like Complan, Heinz ketchup, and T.G.I Friday in its kitty, it’s hard to not come by this company. Although, its shares are not undervalued by any means, I believe that there is still head room for appreciation.
In 2011, Heinz acquired an 80% stake Coniexpress S.A. Industrias, which is a Brazil based manufacturer of Quero, for $493.5 million. In 2010, the company had acquired Foodstar, which is the leading manufacturer of soy sauce in China, for $165.4 million. These acquisitions not only expanded its product line, but also allowed Heinz to enter into the emerging markets without bureaucratic loops.
Its operations in the emerging world hold the key to its growth. On a quarterly basis, its revenues from Asia rose by 4% while its net income surged by 27%. Its operations in Brazil and China delivered a whopping 33% and 20% organic sales growth, respectively. But, its operations from the emerging nations accounted for only 23% of its revenue, which suggests that there is still huge growth potential.
The company has largely been focusing on organic growth, and consolidating in its existing markets. As a result, over the last 5 years, Heinz has outperformed most of its peers in terms of stock returns, and the company has reported impressive financials for the last 4-5 quarters. Heinz is expected to report earnings in the range of $3.52-$3.62, and the Street is expecting it to again outperform the estimates.
So Heinz looks attractive, but is it financially healthy? Only the financial metrics can tell.
|Company||Forward P/E||ROE||ROI||Net profit margin||Yield||Debt/Equity|
(Source : Finviz)
*ROI = Returns on Investment
*ROE = Returns on Equity
From the table above, it is very much evident that Heinz enjoys a high net profit margin along with impressive returns on capital. Moreover, its yield is pretty high for a major diversified food company. But ConAgra and Unilever have lower debt/equity levels.