Worldwide consumption of canned meat and canned goods in general has boomed during the last few weeks as the pandemic continues around the world. These increased levels of consumption have seen food manufacturers on the rise, including Marfrig Global Foods SA (BSP:MRFG3, Financial), Hormel Foods Corp. (HRL, Financial) and The Kraft Heinz Co. (KHC, Financial).
For the first time in many young American's lives, the pandemic brought about empty shelves in grocery stores. By April, many people had flocked to their local grocery store and stocked up on as many staples as they could afford.
Fresh meat supplies became increasingly strained and other goods became almost nonexistent, toilet paper being the most notorious culprit. With these supplies dwindling and many out of work, canned goods filled the void in empty grocery carts. As the sales of canned goods increased, so did the value of the companies producing them.
Marfrig Global Foods
On June 24, the company was trading at 12.57 Brazilian reals ($2.36) with a market cap of 8.70 billion reals ($1.63 billion). The Peter Lynch chart shows the stock was trading close to its intrinsic value until the end of 2019.
Marfrig Global Foods is a Brazilian food processing company that processes and distributes meat products. The company has operations worldwide, including in Brazil, Argentina, Chile, Uruguay and the United States. Its main segments include Marfrig Beef and Keystone. Marfrig Beef operations include the slaughter, manufacture, distribution, import, export and marketing of beef and lamb meat. Keystone operations consist of producing and developing multiprotein foods to serve global restaurant chains, including McDonald's (MCD) and Subway; food companies such as Conagra Brands (CAG) and Campbell Soup (CPB), and others.
GuruFocus gives the company a financial strength rating of 4 out of 10 and a profitability rank of 5 out of 10. While a severe warning sign of a declining operating margin percentage is shown, the current 7.5% is better than 63.66% of consumer packaged goods companies. The return on equity of 25.73% beats the majority of competitors as well.
Hormel Foods
June 24 saw shares trading at $47.60 with a market cap of $25.65 billion. The Peter Lynch chart suggests the stock has been trading above its intrinsic value and is overpriced.
Hormel Foods is a protein-focused branded food company. Its brands include its namesake Hormel, Spam, Jennie-O, Dinty Moore, Applegate, Wholly Guacamole and Skippy. The vast majority of the company's revenue is U.S.-based. By product type, 19% of revenue is shelf-stable foods, 19% is poultry (branded and commodity), 57% is other perishable food and 5% is other, primarily nutritional products. The company holds the number one market position in turkey, shelf-stable meat, pepperoni, natural/organic deli meat, guacamole and canned stew and the number two position in bacon and peanut butter.
GuruFocus gives the company a financial strength rating of 8 out of 10, a profitability rank of 8 out of 10 and a valuation rank of 1 out of 10. Strong operating and net margins beat out at least 70% of the industry. Alongside a high cash-to-debt ratio, an Altman Z-Score of 9.7 places the company well into the safe zone and bankruptcy will not be an issue in the next two years.
Kraft Heinz
On June 24, Kraft Heinz was trading at $32.40 with a market cap of $39.59 billion. According to the Peter Lynch chart, the stock was trading above its intrinsic value at the end of 2019.
In July 2015, Kraft merged with Heinz to create the third-largest food and beverage manufacturer in North America behind PepsiCo (PEP) and Nestle (XSWX:NESN) and the fifth-largest player in the world. Beyond its namesake brands, the combined company's portfolio includes the Oscar Mayer, Planters, Ore-Ida and Philadelphia brands. Outside of North America, its global reach includes a distribution network in Europe and emerging markets that drive around one-fifth of its consolidated sales base as its products are sold in more than 190 countries and territories around the world.
GuruFocus gives the company a financial strength rating of 4 out of 10 and a profitability rank of 7 out of 10. The company shows two severe warning signs with declining revenue per share and new issued debt. The cash-to-debt ratio of 0.17 is lower than 69.31% of the industry.
Disclaimer: Author owns no stocks mentioned.
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