The Best Companies of the Food Processing Industry – June 2015
While ModernGraham supports the bottom-up approach to investing, many investors do utilize the top-down method, whereby an industry is selected before the company itself.  With that in mind, this article will take a brief look at the best value stocks of the Food Processing industry, selecting the most promising investment opportunities within the industry, and giving a broad look into the industry as a whole.
Out of the more than 500 companies reviewed by ModernGraham, 20 were identified as being closely related to the food processing industry.  Of those, only one is suitable for the Defensive Investor, seven are suitable for the Enterprising Investor, and the remaining twelve are considered speculative at this time.  Excluding any extreme outliers, the average company was rated as being priced at 150.24% to its MG Value (estimated intrinsic value), with an average PEmg ratio of 25.75.  The industry as a whole, therefore would appear to be overvalued, particularly in comparison to the market (see Mr. Market’s Mental State).
The Elite
The following companies have been rated as the most undervalued and suitable for either the Defensive Investor or the Enterprising Investor:
Tyson Foods Inc. (TSN)
Tyson Foods Inc. is suitable for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the low current ratio and the insufficient earnings stability over the last ten years, while the Enterprising Investor is only concerned by the level of debt relative to the net current assets.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research and comparing the company to other opportunities.  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.99 in 2011 to an estimated $2.52 for 2015.  This level of demonstrated growth is greater than the market’s implied estimate of 3.33% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price. (See the full valuation)
The Good
The following companies have been rated as fairly valued and suitable for either the Defensive Investor or the Enterprising Investor.
B&G Foods Inc. (BGS)
B&G Foods Inc. should satisfy the Enterprising Investor, but not the Defensive Investor. The Defensive Investor is concerned with the low market capitalization, short dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned by the level of debt relative to the net current assets. Therefore, Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.
From a valuation side of things, the company has grown its EPSmg (normalized earnings) from $0.49 in 2010 to $0.94 for 2014. This level of demonstrated growth is in line with the market’s implied estimate for earnings growth of 10.77% over the next 7-10 years. The ModernGraham valuation model, therefore, returns an estimate of intrinsic value falling within a margin of safety relative to the current price, indicating the company is fairly valued at the present time. (See the full valuation on Seeking Alpha)
Hormel Foods Corporation (HRL)
Hormel Foods Corporation is suitable for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the high PEmg and PB ratios while the Enterprising Investor has no initial concerns.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research and comparing the company to other opportunities.  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $1.43 in 2011 to an estimated $2.20 for 2015.  This level of demonstrated growth supports the market’s implied estimate of 8.31% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the price. (See the full valuation)
The Full List
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| Ticker | Name with Link | Investor Type | Latest Valuation Date | MG Value | Recent Price | Price as a percent of Value | PEmg Ratio | Div. Yield |
| ADM | Archer Daniels Midland Company | E | 5/6/2015 | $13.13 | $53.03 | 403.88% | 20.80 | 2.11% |
| BGS | B&G Foods, Inc. | E | 3/18/2015 | $33.19 | $30.78 | 92.74% | 32.74 | 4.42% |
| CAG | ConAgra Foods, Inc. | S | 8/15/2014 | $8.69 | $31.47 | 362.14% | 23.84 | 3.18% |
| CCE | Coca-Cola Enterprises Inc | S | 4/3/2014 | $85.29 | $44.35 | 52.00% | 19.98 | 2.53% |
| CPB | Campbell Soup Company | S | 1/26/2015 | $15.16 | $48.32 | 318.73% | 21.29 | 2.59% |
| DPS | Dr Pepper Snapple Group Inc. | S | 9/9/2014 | $118.17 | $76.46 | 64.70% | 24.91 | 2.51% |
| GIS | General Mills, Inc. | S | 4/3/2015 | $34.47 | $56.29 | 163.30% | 21.73 | 3.13% |
| HRL | Hormel Foods Corp | E | 3/14/2015 | $53.81 | $57.07 | 106.06% | 25.94 | 1.75% |
| HSY | Hershey Co | S | 1/25/2015 | $119.15 | $92.73 | 77.83% | 27.35 | 2.31% |
| K | Kellogg Company | S | 2/14/2015 | $21.56 | $62.55 | 290.12% | 20.99 | 3.13% |
| KO | The Coca-Cola Company | S | 3/3/2015 | $19.68 | $40.92 | 207.93% | 22.12 | 3.23% |
| KRFT | Kraft Foods Group Inc | S | 1/31/2015 | $115.17 | $84.27 | 73.17% | 23.61 | 2.61% |
| MDLZ | Mondelez International Inc | S | 6/23/2014 | $7.72 | $40.69 | 527.07% | 28.26 | 1.47% |
| MJN | Mead Johnson Nutrition CO | E | 5/20/2015 | $81.29 | $96.96 | 119.28% | 28.19 | 1.70% |
| MKC | McCormick & Company, Incorporated | S | 8/15/2014 | $57.04 | $78.31 | 137.29% | 27.00 | 2.04% |
| MNST | Monster Beverage Corp | E | 3/26/2015 | $80.67 | $127.17 | 157.64% | 60.56 | N/A |
| PEP | PepsiCo, Inc. | S | 1/25/2015 | $57.85 | $95.97 | 165.89% | 22.58 | 2.93% |
| SJM | The J.M. Smucker Company | D | 4/8/2015 | $97.27 | $118.42 | 121.74% | 23.68 | 2.16% |
| SYY | SYSCO Corporation | E | 5/8/2015 | $7.60 | $37.22 | 489.74% | 22.70 | 3.22% |
| TSN | Tyson Foods, Inc. | E | 3/28/2015 | $96.94 | $42.22 | 43.55% | 16.75 | 0.95% |
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| Ticker | Name with Link | Investor Type | Latest Valuation Date | MG Value | Recent Price | Price as a percent of Value | PEmg Ratio | Div. Yield |
| ADM | Archer Daniels Midland Company | E | 5/6/2015 | — | $53.03 | — | — | 2.11% |
| BGS | B&G Foods, Inc. | E | 3/18/2015 | — | $30.78 | — | — | 4.42% |
| CAG | ConAgra Foods, Inc. | S | 8/15/2014 | — | $31.47 | — | — | 3.18% |
| CCE | Coca-Cola Enterprises Inc | S | 4/3/2014 | — | $44.35 | — | — | 2.53% |
| CPB | Campbell Soup Company | S | 1/26/2015 | — | $48.32 | — | — | 2.59% |
| DPS | Dr Pepper Snapple Group Inc. | S | 9/9/2014 | — | $76.46 | — | — | 2.51% |
| GIS | General Mills, Inc. | S | 4/3/2015 | — | $56.29 | — | — | 3.13% |
| HRL | Hormel Foods Corp | E | 3/14/2015 | — | $57.07 | — | — | 1.75% |
| HSY | Hershey Co | S | 1/25/2015 | — | $92.73 | — | — | 2.31% |
| K | Kellogg Company | S | 2/14/2015 | — | $62.55 | — | — | 3.13% |
| KO | The Coca-Cola Company | S | 3/3/2015 | — | $40.92 | — | — | 3.23% |
| KRFT | Kraft Foods Group Inc | S | 1/31/2015 | — | $84.27 | — | — | 2.61% |
| MDLZ | Mondelez International Inc | S | 6/23/2014 | — | $40.69 | — | — | 1.47% |
| MJN | Mead Johnson Nutrition CO | E | 5/20/2015 | — | $96.96 | — | — | 1.70% |
| MKC | McCormick & Company, Incorporated | S | 8/15/2014 | — | $78.31 | — | — | 2.04% |
| MNST | Monster Beverage Corp | E | 3/26/2015 | — | $127.17 | — | — | N/A |
| PEP | PepsiCo, Inc. | S | 1/25/2015 | — | $95.97 | — | — | 2.93% |
| SJM | The J.M. Smucker Company | D | 4/8/2015 | — | $118.42 | — | — | 2.16% |
| SYY | SYSCO Corporation | E | 5/8/2015 | — | $37.22 | — | — | 3.22% |
| TSN | Tyson Foods, Inc. | E | 3/28/2015 | — | $42.22 | — | — | 0.95% |
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Disclaimer:  The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.
