Pilgrim's Pride (PPC) Rises As Market Takes a Dip: Key Facts

Based in Springdale, Arkansas, Tyson Foods, Inc. operates as a food company, producing, distributing, and marketing a range of products, including prepared foods. Valued at a market cap of $22.1 billion, the company sells its products through its sales staff to grocery retailers and wholesalers, meat distributors, military commissaries, industrial food processing companies, chain restaurants, and international export companies.

Companies worth more than $10 billion are generally described as “large-cap” stocks, and Tyson Foods fit right into that category. The company distinguishes itself as the world's second-largest processor and marketer in its sector and is renowned as a leader in protein production. It owns various brands, including Tyson, Jimmy Dean, and Hillshire Farm, among others, and is focused on innovation, with 19 test kitchens.

Shares of TSN are trading 7.3% below their 7.5% return over the same time frame.

U.S. stock markets have witnessed renewed momentum in 2024 after an impressive 2023. The bull run continued for the past 18 months, barring some minor fluctuations. Meanwhile, market participants are expecting a 100% chance of the first rate cut to be initiated at the Fed FOMC meeting scheduled to start today.

Aside from the three major stock indexes, the mid-cap-centric S&P 400 index is up 10.2% year to date. Within the mid-cap space, a handful of stocks (market capital greater than $8 billion but currently less than $10 billion) have the potential to become large caps in the near future.

Five such stocks are Maplebear Inc. CART, Norwegian Cruise Line Holdings Ltd. NCLH, Sirius XM Holdings Inc. SIRI, Abercrombie & Fitch Co. ANF and Pilgrim's Pride Corp. PPC.

These stocks have seen positive earnings estimate revisions in the last 60 days and have strong price upside potential in the short-term. Each of our picks currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Why Mid-Cap Stocks?

Investment in mid-cap stocks is often recognized as a good portfolio diversification strategy. These stocks combine the attractive attributes of both small and large-cap stocks. Top-ranked, mid-cap stocks have a high potential to enhance their profitability, productivity and market share. These may also become large-cap over time.

If the economic growth slows down due to any unforeseen internal or external disturbance, mid-cap stocks will be less susceptible to losses than their large-cap counterparts owing to less international exposure.

On the other hand, if the economy continues to thrive, these stocks will gain more than small caps due to established management teams, a broad distribution network, brand recognition and ready access to the capital markets.

5 Mid-Caps Set to Turn to Large-Cap Stocks

These stocks could be poised to cross $10 billion in valuation, the yardstick for large-cap stocks status:

Maplebear Inc.

Maplebear is a grocery technology company operating principally in North America with grocers and retailers to transform how people shop. CART’s Instacart Platform offers retailers a suite of enterprise-grade technology products and services to power their e-commerce experiences, fulfill orders, digitize brick-and-mortar stores, provide advertising services, and glean insights. CART also operates virtual convenience stores; and provides software-as-a-service solutions to retailers.

Attractive Short-Term Price Upside Potential for CART Stock

The Zacks Consensus Estimate for the current-year earnings of CART has improved 10.9% in the last 60 days. The short-term average price target of brokerage firms for the stock represents an increase of 18.6% from the average target price of $43.85. The brokerage target price is currently in the range of $32-$52.

Grocery Outlet Holding Corp. GO has experienced a pullback in its share performance losing nearly half of its value and falling far below its 52-week high of $30.33, touched in last September. Currently trading at $16.27, the stock has seen a 46.4% drop from its peak. Over the past three months, Grocery Outlet shares have plunged 21.2%, underperforming the broader industry, which has risen 9.4% and the S&P 500, which posted a 2.7% return during the same period.

The recent decline in share performance is attributed to the challenges stemming from its systems transition, which began last September. Also, the company is grappling with rising expenses, which are putting additional pressure on its already thin margins, further contributing to its underperformance.

Moreover, Grocery Outlet’s stock has fallen below critical technical thresholds, including its 50-day and 200-day moving averages. This moving average is an important indicator for gauging market trends and momentum. The breach of this threshold heightens investor concerns about the stock’s short-term outlook.

Reflecting the negative sentiment around Grocery Outlet, the Zacks Consensus Estimate for 2024 has seen a downward revision. Over the past 60 days, the consensus estimate for earnings for the current fiscal year has fallen by a penny to 92 cents per share. This implies a year-over-year earnings decline of 14%. For the next fiscal, the Zacks Consensus Estimate for earnings has declined from 3.4% to $1.13.

What Derailed Grocery Outlet’s Stock?

The recent systems transition has posed significant challenges for Grocery Outlet and negatively impacting both its operational efficiency and financial performance. This disruption has resulted in lower-than-expected margins with the implementation of new technology platforms, which is reducing the gross margin by 100 basis points in the second quarter of 2024.

Although improvements have been made, the ongoing challenges could hinder margin expansion and operational scalability in the near term. Grocery Outlet guided a full-year gross margin of 30.5%, down from 31.3% guided earlier. The current projection showed an 80-basis point contraction in the gross margin from the year-ago period.

The company is grappling with rising SG&A (Selling, General, and Administrative) expenses, driven by higher costs for independent operator commissions, store occupancy and incentive compensation. This upward trend in SG&A expenses has been evident over the past few quarters and could strain profits.

Does GO Have Enough Potential to Turn Things Around?

Despite challenges, Grocery Outlet's strategic focus on opportunistic purchasing, targeted marketing, store expansion and e-commerce initiatives is demonstrating potential. With its distinctive business model featuring opportunistic sourcing and an Independent Operator structure, GO differentiates itself from conventional retailers.

Another key factor that could turn things around for Grocery outlet is the 'WOW!' deals. The store’s compelling value proposition is expected to continue to attract bargain hunters, encourage customers to revisit stores and increase basket sizes. Notably, a typical 'Grocery Outlet basket' is priced roughly 40% below that of conventional grocers and approximately 20% below leading discounters.

With a customer-centric approach, Grocery Outlet recently announced the launch of its new private label program, GO Brands. Set to introduce 100 new products by the end of the year, the program will feature three distinct lines: SimplyGO, GO Home & Haven, and GO Paw & Pamper. This initiative, starting this month, underscores the company’s commitment to offering both affordability and quality, with the GO Brands program aimed at delivering exceptional value.

Does GO’s Stock Looks Attractive?

Investors might find Grocery Outlet appealing due to its relatively low valuation. GO is currently trading at a discount to its historical and industry benchmarks. The stock has a forward 12-month P/E ratio of 15.21, which is below the median level of 28.1 scaled in the past year. This compares to the forward 12-month P/E ratio of 18.55 for the industry.

Final Words on Grocery Outlet

Quite apparent, Grocery Outlet’s system transition has weighed on its performance lately, but that does not mean the company is devoid of potential. Investors with a long-term horizon may stay invested in the stock. The recent decline in the stock price has made it look attractive and provides a better entry point for potential investors. However, with the margin yet to recover in full, Grocery Outlet comes with an element of caution.

GO currently carries a Zacks Rank #3 (Hold).

Three Stocks to Consider

Here, we have highlighted three better-ranked food stocks, namely, The Chef's Warehouse CHEF, Pilgrim’s Pride PPC and Ollie's Bargain Outlet OLLI.

The Chef’s Warehouse, which engages in the distribution of specialty food products, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

CHEF has a trailing four-quarter earnings surprise of 33.7%, on average. The Zacks Consensus Estimated figure for The Chef’s Warehouse’s current fiscal year sales and earnings indicates growth of 9.7% and 12.6%, respectively, from the year-ago reported numbers.

Pilgrim’s Pride, which produces, processes, markets and distributes fresh, frozen and value-added chicken and pork products, currently sports a Zacks Rank #1. PPC delivered a positive earnings surprise of 27.3% in the trailing four quarters, on average. The Zacks Consensus Estimated figure for Pilgrim’s Pride’s current financial-year earnings indicates growth of 183.43%, , from the prior-year reported level.

Ollie's Bargain, the extreme-value retailer of brand-name merchandise, currently carries a Zacks Rank #2 (Buy). OLLI has a trailing four-quarter earnings surprise of 7.9%, on average. The Zacks Consensus Estimated figure for Ollie's Bargain’s current financial-year sales and earnings indicates a rise of around 8.7% and 12.71%, respectively, from the year-earlier levels.

Zacks Investment Research

After an initial setback at the beginning of the month, the broader U.S. equity markets witnessed a steady uptrend over the past few days as the technology stocks appeared to regain the lost ground. The stock market rally was further propelled by cooling inflation, with data from the U.S. Consumer Price Index revealing that the 12-month inflation rate declined to 2.5% in August – the lowest level since February 2021. This was followed by another healthy economic data that portrayed that the Producer Price Index, a measure of final demand goods and services costs that producers receive, increased 0.2% in August – in line with the broader expectations.

With a better-than-expected 2.8% annualized GDP growth in the second quarter and solid labor market conditions, it appeared that the economy was back on the growth track, cooling recessionary fears. Amid the uncertainty, investors often seek to employ time-tested winning strategies to fetch sustained profits. One of the most successful game plans to beat the blues is to bet on momentum stocks like Pilgrim's Pride Corporation PPC, Tenet Healthcare Corporation THC and MGIC Investment Corporation MTG when value or growth investing fails to generate the desired profits.

This approach primarily tends to follow the adage, “the trend is your friend.” At its core, momentum investing is “buying high and selling higher.” It is based on the idea that once a stock establishes a trend, it is more likely to continue in that direction because of the momentum that is already behind it. Momentum investing is a way to profit from the general human tendency to extrapolate current trends into the future. It is based on that gap in time before the mean reversion occurs, i.e., before prices become rational again.

Momentum strategies have been known to be alpha-generative over a long period and across market stages. So, this strategy is quite tricky to implement, as detecting these trends is no child’s play. Here, we have created a strategy to help investors get in on these fast movers and rake in handsome gains. Our screen will help you benefit from both long-term price momentum and a short-term pullback in price.

Screening Parameters for Momentum Anomaly Stocks

Percentage Change in Price (52 Weeks) = Top #50: This selects the top 50 stocks with the best percentage price change over the last 52 weeks. This parameter ensures we get the best stocks that have appreciated steadily over the past year.

Percentage Change in Price (1 Week) = Bottom #10: From the above 50 stocks, we then choose those that are also among the 10 worst performers over a short one-week period. This parameter picks the ones that have witnessed a short-term pullback in price.

Zacks Rank #1: Stocks sporting a Zacks Rank #1 (Strong Buy) have a proven history of outperformance irrespective of the market conditions. You can see the complete list of today’s Zacks #1 Rank stocks here.

Momentum Style Score of B or Better: A top Momentum Style Score knocks out a lot of the screening process as it takes into account several factors that include volume change and performance relative to its peers. It indicates when the timing is best to grab a stock and take advantage of its momentum with the highest probability of success. Stocks with a Momentum Score of A or B, when combined with a Zacks Rank #1 or 2 (Buy), handily outperform other stocks.

Current Price greater than $5: The stocks must all be trading at a minimum of $5.

Market Capitalization = Top #3000: We have chosen stocks that are among the top 3000 in terms of market value to ensure the stability of price.

Average 20-Day Volume greater than 100,000: A substantial trading volume ensures that these stocks are easily tradable.

Here are three stocks out of the eight that made it through this screen:

Greeley, CO-based Pilgrim's Pride is engaged in the processing, production, marketing and distribution of frozen, fresh and value-added chicken products. The company offers its services in the United States, Mexico, France, the Netherlands, Puerto Rico and Mexico through several distributors, retailers and food service operators. The stock has surged 65.4% in the past year but declined 9.3% in the past week. Pilgrim's Pride has a Momentum Score of B.

Founded in 1967 and headquartered in Dallas, TX, Tenet is an investor-owned healthcare services company that owns and operates general hospitals and related healthcare facilities for urban and rural communities in numerous states and has offices in California and Florida. The company has investments in other healthcare companies and is one of the largest investor-owned healthcare delivery systems in the United States. The stock has gained 121.5% in the past year but declined 2.4% in the past week. Tenet has a Momentum Score of A.

Based in Milwaukee, WI, and formed in 1957, MGIC Investment is the parent company of Mortgage Guaranty Insurance Corporation, the largest private mortgage insurer in the United States. It established the private mortgage insurance industry to provide a private market alternative to federal government insurance programs for families wanting to buy a home with less than a 20% down payment. With a focus on sustainable homeownership, MGIC Investment provides a critical component of the country's residential mortgage finance system by protecting mortgage investors from credit losses. The stock has rallied 42.9% in the past year but lost 1.9% in the past week. MGIC Investment has a Momentum Score of B.

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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.

Zacks Investment Research

Pilgrim's Pride (PPC) closed at $41.27 in the latest trading session, marking a -1.76% move from the prior day. The stock trailed the S&P 500, which registered a daily gain of 0.75%. Meanwhile, the Dow gained 0.58%, and the Nasdaq, a tech-heavy index, added 1%.

The the stock of poultry producer has fallen by 8.05% in the past month, lagging the Consumer Staples sector's gain of 3.54% and the S&P 500's gain of 4.03%.

The investment community will be paying close attention to the earnings performance of Pilgrim's Pride in its upcoming release. The company is forecasted to report an EPS of $1.28, showcasing a 120.69% upward movement from the corresponding quarter of the prior year.

Investors should also note any recent changes to analyst estimates for Pilgrim's Pride. These recent revisions tend to reflect the evolving nature of short-term business trends. As a result, we can interpret positive estimate revisions as a good sign for the company's business outlook.

Our research shows that these estimate changes are directly correlated with near-term stock prices. To take advantage of this, we've established the Zacks Rank, an exclusive model that considers these estimated changes and delivers an operational rating system.

The Zacks Rank system, stretching from #1 (Strong Buy) to #5 (Strong Sell), has a noteworthy track record of outperforming, validated by third-party audits, with stocks rated #1 producing an average annual return of +25% since the year 1988. Over the past month, the Zacks Consensus EPS estimate has remained steady. As of now, Pilgrim's Pride holds a Zacks Rank of #1 (Strong Buy).

Digging into valuation, Pilgrim's Pride currently has a Forward P/E ratio of 8.77. This indicates a discount in contrast to its industry's Forward P/E of 19.86.

We can also see that PPC currently has a PEG ratio of 0.21. Comparable to the widely accepted P/E ratio, the PEG ratio also accounts for the company's projected earnings growth. As of the close of trade yesterday, the Food - Meat Products industry held an average PEG ratio of 0.43.

The Food - Meat Products industry is part of the Consumer Staples sector. With its current Zacks Industry Rank of 47, this industry ranks in the top 19% of all industries, numbering over 250.

The Zacks Industry Rank assesses the vigor of our specific industry groups by computing the average Zacks Rank of the individual stocks incorporated in the groups. Our research shows that the top 50% rated industries outperform the bottom half by a factor of 2 to 1.

Zacks Investment Research

TreeHouse Foods, Inc. THS has established a strong market position by capitalizing on two major long-term consumer trends, which include the increasing demand for private-label groceries in North America and the expanding popularity of snack products. With its diverse portfolio, THS is well-positioned to capture a growing share in this evolving market.

As private brands have steadily gained market share over the past 20 years, TreeHouse Foods has demonstrated its capacity to address consumer needs while maintaining attractive pricing. The elevated price gaps between national and private brands further support continued growth in the private label sector.

TreeHouse Foods has reinforced competitive position in the market by successfully executing its strategies in several key product categories, including cookies, refrigerated dough, pretzels and pickles. These aspects indicate growth in the second half of the year. Additionally, THS' strategic investments and an expanding net sales pipeline contribute to its strong market position. The abovementioned factors solidify the company's reputation as a leading supplier of private brands.

Shares of THS have gained 15.7%, outpacing the industry’s growth of 7.8% in the past three months.

Growth Factors for TreeHouse Foods' Stock

TreeHouse Foods’ transformation journey is poised for success as it focuses on strengthening and expanding its presence in the snacking and beverage sectors. This effort includes improving supply chain operations and delivering exceptional service to drive organic growth and create long-term value for stakeholders.

Key initiatives to enhance the supply chain includes the implementation of the TreeHouse Management Operating System (TMOS) and improvements in procurement and distribution. These efforts are intended to enhance operational execution, increase profit margins and build stronger customer relationships.

In the first half of 2024, the TMOS initiatives have led to notable improvements in overall equipment effectiveness and service quality. TreeHouse Foods expects to achieve $50 million in gross cost savings in the second half of 2024, driving margin expansion. Additionally, the company expects increased volume during this period, fueled by seasonal demand in categories such as coffee, creamer, hot cereal, refrigerated dough and broth. It also foresees meeting its objectives by restarting broth facility during this time frame.

Strategic acquisitions have played a crucial role in expanding THS’ product offerings. Notable acquisitions in 2024, including Bick's pickles, Habitant pickled beets, Woodman's horseradish and McLarens pickled onions brands from The J.M. Smucker have significantly diversified the company's revenue streams and enhanced its portfolio. These additions have bolstered TreeHouse Foods' position in the market by catering to a wider range of consumers.

Roadblocks on THS’ Way

While TreeHouse Foods has made significant strides, ongoing supply chain hurdles remain a challenge. Issues related to increased labor costs and the restoration of the broth facility resulted in a $3 million headwind. The supply-chain disruptions also impacted the company’s gross margin, which fell to 16.3%, a 0.3% point decrease from the previous year, due to the costs associated with bringing the broth facility back.

The company has been battling with high operating expenses in the second quarter, which has put pressure on its profits. This uprise was driven by lower TSA income and increased personnel and capability investments. However, these impacts were partially mitigated by reduced freight expenses and TSA-related cost reductions.

How to Play THS Stock?

TreeHouse Foods has reinforced its market standing by focusing on private-label and snack products, aligning with key consumer trends. Although supply chain issues and rising operating costs pose challenges, the company's strategic initiatives and acquisitions suggest potential for sustained growth. Investors should consider a balanced approach, weighing the company's growth prospects against current operational hurdles. TreeHouse Foods currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Here, we have highlighted some better-ranked food stocks, namely, The Chef's Warehouse CHEF, Pilgrim’s Pride PPC and Ollie's Bargain Outlet OLLI. While The Chef's Warehouse and Pilgrim’s Pride sport a Zacks Rank #1 (Strong Buy) each, Ollie's Bargain Outlet carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

CHEF has a trailing four-quarter earnings surprise of 33.7%, on average. The Zacks Consensus Estimated figure for The Chef’s Warehouse’s current fiscal year sales and earnings indicates growth of 9.7% and 12.6%, respectively, from the year-ago reported numbers.

PPC delivered a positive earnings surprise of 27.3% in the trailing four quarters, on average. The Zacks Consensus Estimated figure for Pilgrim’s Pride’s current financial-year earnings indicates growth of 183.4%, respectively, from the prior-year reported level.

OLLI has a trailing four-quarter earnings surprise of 7.9%, on average. The Zacks Consensus Estimated figure for Ollie's Bargain’s current financial-year sales and earnings indicates a rise of around 8.6% and 12.7%, respectively, from the year-earlier level.

Zacks Investment Research