Dj Ingredion Incorporated, Inst Holders, 3Q 2024 (Ingr)

2024 has been an excellent year for stocks. If you want a confirming fact: The S&P500 has been up +23.36% YTD to Nov 20th, 2024. Yet, what can investors expect from owning stocks, going forward?

Our Chief Equity Strategist and Economist, John Blank, is here with the answer.

1. That’s the $64 thousand dollar question. What can investors expect for U.S. stocks going forward? Continued rally?

2. What supports that?

3. What role do you expect earnings to play going forward?

4. What about volatility?

5. Do you see Fed Chairman Powell’s recent signal that the Fed won’t hurry to make interest rate cuts as a negative for stocks?

6. What about Nvidia’s earnings results relative to the AI trade?

7. What’s your 2025 S&P 500 target?

8. Which sectors do you expect to lead the market going into the New Year?

9. What do you see for international stocks?

10. More Large Cap, Strong Buy, stocks on your radar include Ingredion INGR, Celestica, Inc. CLS, and Leonardo DRS Inc. DRS.

Our Chief Equity Strategist and Economist, John Blank, on stocks. With John, I’m Terry Ruffolo.

Zacks Investment Research

Sprouts Farmers Market, Inc. SFM shares have gained 48.7% in the past three months, surpassing the industry and the broader S&P 500 index’s growth of 28.1% and 6.4%, respectively. This strong performance underscores the company’s solid business strategies and market positioning.

At a time when volatility strikes every second day, investors often rely on value investing rather than other options like growth or momentum. As soon as other investors start selling their stocks at a cheaper rate in times of market uncertainty, value investors take this as an opportunity to pick good stocks at a discounted price.

Several stocks that have surged significantly in the recent past have shown the overwhelming success of this pure-play investment strategy. Here, we discuss five such stocks — Ingredion Incorporated INGR, Pfizer PFE, Leidos LDOS, LATAM Airlines Group LTM and Alibaba Group BABA.

More on Value Investing

However, this simple value investment technique has some drawbacks, and not properly understanding the strategy may often lead to “value traps.” In such a situation, these value picks start to underperform over the long run when the temporary problems, which once drove the share price down, turn out to be persistent.

There are many value investment yardsticks, such as dividend yield, P/E or P/B, which are simple and can single out whether a stock is trading at a discount.

However, for investors looking to escape such value traps, it is also vital to determine where the stock will be headed in the next 12 to 24 months. Warren Buffett advises these investors to focus on the earnings growth potential of a stock. This is where the importance of a not-so-popular value investing metric, the PEG ratio, lies.

PEG Ratio at a Glance

The PEG ratio is defined as (Price/ Earnings)/Earnings Growth Rate

A low PEG ratio is always better for value investors.

While P/E alone fails to identify a true value stock, PEG helps find the intrinsic value of a stock.

There are some drawbacks to using the PEG ratio. It does not consider the common situation of changing growth rates, such as the forecast of the first three years at a very high growth rate, followed by a sustainable but lower growth rate over the long term.

Hence, PEG-based investing can turn out to be even more rewarding if some other relevant parameters are also taken into consideration.

Here are some of the screening criteria for a winning strategy:

PEG Ratio less than X Industry Median

P/E Ratio (using F1) less than X Industry Median (for more accurate valuation purposes)

Zacks Rank #1 (Strong Buy) or 2 (Buy) (Whether good market conditions or bad, stocks with a Zacks Rank #1 or 2 have a proven history of success.)

Market Capitalization greater than $1 Billion (This helps us focus on companies that have strong liquidity.)

Average 20-Day Volume greater than 50,000 (A substantial trading volume ensures that the stock is easily tradable.)

Percentage Change F1 Earnings Estimate Revisions (4 Weeks) greater than 5% (Upward estimate revisions add to the optimism, suggesting further bullishness.)

Value Score of less than or equal to B: Our research shows that stocks with a Style Score of A or B, when combined with a Zacks Rank #1, 2 or 3 (Hold), offer the best upside potential.

Our PEG-Driven Picks

Here are five of the 18 stocks that qualified the screening:

Ingredion: Headquartered in Chicago, the company is a leading global ingredient solutions provider serving customers in more than 120 countries. With 2023 annual net sales of nearly $8 billion, Ingredion turns grains, fruits, vegetables and other plant-based materials into value-added ingredient solutions for the food, beverage, animal nutrition, brewing and industrial markets.

Ingredioncurrently sports a Zacks Rank #1 and has a Value Score of A. INGR also has an impressive five-year expected growth rate of 11%.

Pfizer: The NY-based company markets a wide range of drugs and vaccines. Pfizer’s Biopharma reporting segment includes three broad therapeutic areas — Primary Care (Internal Medicine, Vaccines, Migraine and COVID-19 products), Specialty Care (Inflammation & Immunology, Rare Disease and Hospital [excluding Paxlovid]) and Oncology.

Apart from a discounted PEG and P/E, PFE currently has a Zacks Rank #2 and a Value Score of A. Pfizer has a long-term expected growth rate of 10.7%.

Leidos: The Delaware-based company is a global science and technology leader that serves the defense, intelligence, civil and health markets. Its core capabilities include providing solutions in the fields of cybersecurity; data analytics; enterprise IT modernization; operations and logistics; sensors, collection and phenomenology; software development; and systems engineering.

Leidos sports a Zacks Rank #1 and has a Value Score of A. LDOS also has an impressive five-year expected growth rate of 14.8%.

LATAM Airlines: Together with its subsidiaries, the company provides passenger and cargo air transportation services in Chile, Peru, Ecuador, Colombia, Brazil, other Latin American countries, the Caribbean, North America, Europe, and Oceania. It offers other services, such as ground handling, courier, logistics and maintenance.

LATAM Airlines has an impressive long-term expected earnings growth rate of 14.2%. LTM currently has a Value Score of A and flaunts a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Alibaba:This is one of the leading e-commerce giants in China. Over the last few years, Alibaba transformed itself from a traditional e-commerce company to a conglomerate with businesses ranging from logistics and food delivery to cloud computing. Alibaba is represented by three businesses – Alibaba.com, Taobao, and Tmall. The company's businesses account for more than half of all online retail sales in China, which is one of the world’s fastest-growing e-commerce markets.

Apart from a discounted PEG and P/E, BABA currently flaunts a Zacks Rank #1 and has a Value Score of A. Alibaba has a long-term expected growth rate of 24%.

You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.

The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.

Click here to sign up for a free trial to the Research Wizard today.

Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Zacks Investment Research

Tyson Foods, Inc. TSN is currently trading at a forward 12-month price-to-earnings (P/E) ratio of 17.51, higher than the industry average of 16.08. This premium valuation reflects the market's confidence in the company's potential to deliver strong profit growth. However, it remains to be seen if the company can report results that justify such a premium.

Shares of Tyson Foods have lagged in recent months, with a modest gain of 0.4% over the past three months, compared to the industry’s growth of 1.2% and the S&P 500’s increase of 6.4%. While a high valuation and the stock's recent underperformance suggest caution, the company's key growth strategies may appeal to investors.

Current Challenges for Tyson Foods

Tyson Foods, like many other global companies, faces ongoing macroeconomic uncertainties that could impact demand for protein products. Volatile currency movements, fluctuating commodity prices and potential slowdowns in consumer spending pose risks to both international and domestic operations.

The company has been grappling with challenges in its Beef segment, with profitability heavily impacted by compressed spreads and tight cattle supplies. For fiscal 2025, the United States Department of Agriculture (“USDA”) projects domestic protein production for beef to decline nearly 2% year over year. Tyson Foods expects a loss between $400 million and $200 million for the Beef segment in the fiscal, mirroring fiscal 2024 results.

In the fourth quarter of fiscal 2024, profitability in the Beef segment remained constrained despite a 4.6% revenue increase. While Tyson Foods has implemented operational efficiencies, such as reducing costs and improving yields, approximately 85% of the segment's performance remains dictated by uncontrollable market dynamics, including cattle availability and pricing volatility. These persistent headwinds signal continued difficulty in achieving a meaningful recovery in the Beef segment.

Tyson Foods' Pork segment also faces challenges stemming from pricing pressures and a constrained market environment. The segment saw a 3.7% decline in revenues during the fourth quarter, attributed to lower pricing on dropped credit items. While Tyson Foods has made strides in optimizing its pork network and expanding its portfolio with seasoned and marinated products, the broader market conditions and pricing constraints could negate these operational gains, potentially stalling momentum in this segment.

Despite delivering an adjusted operating income (AOI) increase of $270 million year over year in fiscal 2024, driven by improved operational execution and healthier herd dynamics, the company anticipates flat profitability for fiscal 2025, with AOI projected between $100 million and $200 million. This limited upside reflects the risk of tightening spreads and challenges in maintaining margins in a competitive protein market.

TSN’s Growth Strategy on Track

Tyson Foods’ diversified protein portfolio enables the company to navigate market cycles effectively. While beef and pork face near-term challenges, the strong performance of chicken and prepared foods underscores the resilience of the company’s multi-protein approach. The company also plans to expand its international footprint by improving capacity utilization and aligning operations with regional market needs, diversifying its growth avenues. Tyson Foods’ multi-channel, multi-protein strategy is central to its long-term resilience and growth, allowing it to capitalize on different market opportunities as they arise.

Tyson Foods' growth strategy is anchored in three key pillars: operational excellence, customer and consumer obsession and sustainability. Operational excellence is achieved through continuous improvement initiatives that enhance productivity and efficiency across all segments, supported by a robust supply-chain optimization strategy. The second pillar, customer and consumer obsession, drives Tyson Foods’ commitment to understanding and responding to evolving consumer preferences.

Tyson Foods’ focus on sustainability underscores its commitment to ethical sourcing and responsible production practices, addressing the increasing consumer demand for sustainable food options. Together, these pillars position Tyson Foods for continued growth and resilience in the competitive protein market.

Tyson Foods exhibited a significant turnaround in fiscal 2024, with adjusted operating income (AOI) of $1.8 billion, nearly doubling from fiscal 2023. In the fourth quarter of fiscal 2024, the company’s AOI soared considerably to $512 million from the $236 million reported in the year-ago period. The adjusted earnings per share (EPS) increased from 37 cents to 92 cents in the quarter, marking the strongest quarterly performance in eight quarters. Improved operational efficiency and disciplined cost management led to the upside, keeping the company well-positioned for the future.

What to Expect From TSN?

Tyson Foods’ fiscal 2025 guidance anticipates flat to slightly declining net sales, with volume growth in prepared foods and chicken likely to be offset by declines in beef and pork. Beef volumes are particularly vulnerable to supply constraints, and pork could face challenges from tighter spreads despite operational improvements. This stagnant volume growth outlook may deter investor confidence in the company’s ability to drive top-line expansion.

However, the fiscal 2025 AOI is envisioned in the $1.8-$2.2 billion band, suggesting nearly 10% growth at the midpoint, driven by strength in prepared foods and chicken. This optimistic outlook is further reinforced by operational excellence, strategic brand focus and robust free cash flow generation.

Reflecting the positive sentiment around Tyson Foods, analysts have revised their estimates upward. The Zacks Consensus Estimate for the current and next fiscal year earnings per share have increased in the past seven days. These estimates suggest year-over-year growth rates of 12.9% and 22.8%, respectively.

Investors’ Guide to TSN Stock

Tyson Foods’ strong profit growth potential, driven by its diversified protein portfolio and strategic initiatives, looks somewhat shadowed by challenges in key segments like Beef and Pork. While operational efficiencies and sustainability efforts bolster TSN’s long-term growth prospects, near-term headwinds need attention. Investors will need to weigh Tyson Foods' robust strategic framework and operational improvements against ongoing market uncertainties to determine whether its premium valuation is justified. The company currently carries a Zacks Rank #3 (Hold).

Top Three Consumer Staple Picks

Ingredion Incorporated INGR manufactures and sells sweeteners, starches, nutrition ingredients and biomaterial solutions derived from wet milling and processing corn and other starch-based materials. The company currently sports a Zacks Rank #1 (Strong Buy). INGR has a trailing four-quarter earnings surprise of 9.5%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Ingredion’s current financial year’s earnings indicates growth of 12.5% from the year-ago reported number.

Freshpet Inc. FRPT manufactures, distributes and markets natural fresh meals and treats for dogs and cats. It currently carries a Zacks Rank #2 (Buy). FRPT has a trailing four-quarter earnings surprise of 144.5%, on average.

The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings indicates growth of 27.3% and 224.3%, respectively, from the prior-year reported levels.

McCormick & Company MKC, which manufactures, markets and distributes spices, seasoning mixes, condiments and other flavorful products, currently carries a Zacks Rank #2. MKC has a trailing four-quarter earnings surprise of 13.8%, on average.

The Zacks Consensus Estimate for McCormick’s current fiscal-year sales and earnings indicates growth of 0.6% and 8.2%, respectively, from the prior-year reported levels.

Zacks Investment Research

McCormick & Company, Incorporated MKC has raised the quarterly dividend by three cents or 7.1% to 45 cents per share. The next dividend payment is scheduled for Jan. 13, 2025, for its shareholders on record as of Dec. 30, 2024.

This highlights the company's 101st year of continuous dividend payments and the 39th consecutive year of a quarterly dividend hike, demonstrating MKC’s long-term commitment to its shareholders and dedication to returning excess cash through consistent dividend increases.

McCormick has made notable strides in strengthening its financial foundation and increasing shareholder value. In the first nine months of fiscal 2024, the company returned $338.3 million to its shareholders through dividends, while net cash provided by operating activities totaled $463.2 million. The company remains focused on allocating cash toward growth investments, shareholder dividends and debt reduction while maintaining a strong investment-grade rating.

What More Should Investors Know About MKC?

McCormick has been seeing strong momentum driven by three key factors, long-term trends driving its categories, strong consumer interest in healthy and flavorful cooking and enthusiasm for flavor exploration and trusted brands. The company continues to bolster its position across major markets and core categories by focusing on growth levers such as brand marketing, product and packaging innovation, category management and proprietary technology. This innovation-led growth strategy aligns with McCormick’s long-term goal of capturing increased market share, especially in high-growth segments.

McCormick achieved positive volume growth in the third quarter of fiscal 2024, despite the challenging environment and anticipates this momentum to continue into the fourth quarter. The company experienced sequential volume improvements across both Consumer and Flavor Solutions segments, with the Consumer segment in the Americas, EMEA and Asia Pacific regions, excluding China, demonstrating solid volume growth. This growth indicates MKC's continued focus on innovation, alignment with consumer trends and expanding distribution.

Apart from this, the company has been benefiting from its cost-saving initiatives, which are aimed to fund future investments and drive operating margin expansion. The company’s Comprehensive Continuous Improvement and Global Operating Effectiveness programs are driving growth investments and operating margin expansion. For fiscal 2024, the company is focused on strengthening its volume trends and prioritizing investments to fuel profits. Management expects adjusted operating income to grow 4-6% in fiscal 2024, including minimal currency impacts.

Final Words on MKC

McCormick has been experiencing positive volume growth across both of its segments, Consumer and Flavor Solutions, implying its ongoing focus on innovation, alignment with consumer trends and expanding distribution. The company’s strong financial stability and dividend track record further highlight its resilience and potential for sustained growth.

The Zacks Rank #2 (Buy) stock has risen 15.2% in a year against the industry’s decline of 1.2%.

Shares of Energizer Holdings, Inc. ENR surged 9.1% before closing yesterday's trading session following the release of its fourth-quarter results. Net sales declined year over year and lagged the Zacks Consensus Estimate. However, earnings improved from the year-ago period and surpassed the consensus estimate.

Energizer’s strategic initiatives include Project Momentum for margin recovery, cash flow restoration and debt reduction. The company focuses on market expansion by leveraging its global platform, investing in innovation to drive growth, enhancing digital commerce capabilities and improving distribution by optimizing customer placement and pursuing new opportunities.

Energizer Holdings, Inc. Price, Consensus and EPS Surprise

Energizer Holdings, Inc. price-consensus-eps-surprise-chart | Energizer Holdings, Inc. Quote

More on ENR’s Q4 Results

Energizer’s adjusted earnings of $1.22 per share beat the Zacks Consensus Estimate of $1.17. Also, the bottom line increased 1.7% from the year-ago quarter’s reported figure.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

The company reported net sales of $805.7 million, which lagged the Zacks Consensus Estimate of $809 million and also decreased 0.7% from the year-ago quarter’s reported number. Organic sales were flat year over year. The metric missed our anticipated rate of 0.3% increase for the fiscal fourth quarter.

The Battery & Lights segment experienced a volume increase, fueled by improved category trends and expanded global distribution, leading to 1.3% organic growth. Similarly, the Auto Care segment saw 0.5% organic growth, driven by distribution gains and early holiday sales, although partially offset by the timing of refrigerant sales that had boosted the third quarter.

However, these volume gains were offset by 1.8% decline in pricing, attributed to planned strategic pricing actions and promotional investments during the period.

Energizer's Q4 Sales Insights by Segments

Revenues of Energizer's Batteries & Lights segment declined 0.7% year over year to $651.6 million. The figure lagged our estimate of 0.3% decline. We note that segmental profit increased 1.5% to $179.5 million.

Meanwhile, revenues in the Auto Care segment decreased 0.6% to $154.1 million from the year-ago period. Also, we note that segmental profit increased sharply 13.6% to $20 million.

ENR’s Margin & Cost Details

In the fiscal fourth quarter, Energizer’s adjusted gross margin expanded 220 basis points to 42.2%. The improvement in adjusted gross margin during the fourth fiscal quarter was driven by Project Momentum initiatives, which generated approximately $18 million in savings, along with lower input costs, including favorable commodity and material pricing. These gains were partially offset by planned strategic pricing actions and promotional investments. We expected a gross margin expansion of 150 basis points.

Adjusted SG&A expenses increased 6.5% year over year to $123 million. This rise was due to higher labor and benefit costs, increased travel expenses, elevated depreciation expenses from digital transformation initiatives and higher legal fees. This was partially offset by approximately $7 million in savings from Project Momentum.

Adjusted SG&A costs, as a rate of net sales, was 15.3% compared with 14.2% recorded in the prior-year quarter. We expected adjusted SG&A expenses, as a percentage of net sales, to be 15.5% in the fourth quarter. Advertising and promotion expenses represented 4.6% of sales, an increase of 50 basis points, aligning with the company's enhanced investment in long-term growth initiatives.

Adjusted EBITDA was $187.3 million, up 1% year over year, whereas the adjusted EBITDA margin increased 30 basis points to 23.2%.

Energizer’s Financial Health Snapshot

As of Sept. 30, 2024, Energizer’s cash and cash equivalents were $216.9 million, with long-term debt of $3.19 billion and shareholders' equity of $135.8 million. As of the fiscal fourth quarter, ENR paid down an additional $50 million of debt. At the end of the quarter, the company’s net debt to adjusted EBITDA was 4.9x times.

The operating cash flow as of the fiscal fourth quarter was $168.9 million. The company approved a new share repurchase program for up to 7.5 million shares, replacing the previous outstanding authorization.

ENR’s Q1 & FY25 Outlook

For the first quarter, organic revenues are forecasted to grow 2% to 3% year over year. Adjusted gross margins are expected to improve 50-100 basis points with adjusted EPS predicted in the range of 60 cents to 65 cents. This representss mid-single-digit growth compared with the prior period.

For fiscal 2025, management anticipates organic revenue growth of 1% to 2%, driven by expanded distribution in both its Battery and Auto Care businesses. Energizer aims to improve its adjusted gross margin by approximately 50 basis points, bringing the number above 41% for the year.

This margin expansion will be driven by cost savings from the ongoing Project Momentum, which is expected to deliver between $40 million and $60 million in fiscal 2025, marking its final year with total cumulative savings expected to be between $180 million and $200 million.

This revenue increase, along with the final implementation phase of Project Momentum initiatives, is expected to drive growth in adjusted EBITDA, anticipated to be between $625 million and $645 million. Adjusted EPS for the year is expected to be between $3.45 and $3.65. Debt reduction remains a priority for Energizer with plans to pay down $150 million to $200 million in fiscal 2025.

Management anticipates capital expenditures to be between $80 million and $90 million, driven by investments in operations, digital enablement, plastic-free packaging and one-time Momentum costs. As a result of these incremental investments, free cash flow is expected to be between 8% and 10% of sales.

Shares of this Zacks Rank #3 (Hold) company have increased 24.1% in the past three months against the industry’s decline of 0.5%.

Some Better-Ranked Bets

Ingredion Incorporated INGR serves diverse sectors in food, beverage, brewing, pharmaceuticals and other industries. The company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

INGR has a trailing four-quarter earnings surprise of 9.5%, on average. The Zacks Consensus Estimate for Ingredion’s current-financial year’s earnings indicates growth of 12.5% from the year-ago reported number.

Freshpet Inc. FRPT is a pet food company that manufactures and markets natural fresh foods, refrigerated meals and treats for dogs and cats in the United States and Canada. It currently carries a Zacks Rank #2 (Buy). FRPT has a trailing four-quarter earnings surprise of 144.5%, on average.

The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings indicates growth of 27.3% and 224.3%, respectively, from the prior-year reported levels.

McCormick & Company, Inc. MKC is a leading manufacturer, marketer and distributor of spices, seasonings, specialty foods and flavors to the entire food industry. It currently carries a Zacks Rank #2. MKC has a trailing four-quarter earnings surprise of 13.8%, on average.

The Zacks Consensus Estimate for MKC’s current fiscal-year sales and earnings indicates growth of 0.6% and 8.2%, respectively, from the prior-year reported levels.

Zacks Investment Research