Meat Products Companies Offering Optimism, Innovation, and Diversification

Before you go, we thought you'd like these...
Before you go close icon

Pilgrim's Pride  produces, processes, markets, and distributes fresh, frozen, and value-added chicken products in the United States, Mexico, and Puerto Rico. It's a well-run company, and the outlook for poultry/beef has brightened. However, Tyson Foods and Hormel Foods are also enticing investments -- perhaps more enticing than Pilgrim's Pride -- for reasons of their own. 

Optimism for Pilgrim's Pride
Pilgrim's Pride operates under JBS, the largest protein company in the world. JBS sees improved outlooks for the poultry and beef markets in the United States. For poultry, the price of corn is now $4.00 to $4.50 per bushel, significantly lower than last year's price  of $7.00 to $7.50 per bushel. This is critical for poultry, since corn is the primary source of chicken feed, and 70% of poultry costs come from chicken feed.

On the beef side, JBS sees continuously increasing demand from China. And JBS anticipates beef shipments to China to double by 2020. These are positives for Pilgrim's Pride, but one major problem still exists, which is a lack of diversification. If you want to invest in a meat products company with diversification, which will help in weak economic environments and bear markets, consider Hormel Foods. 


Broad diversification
Hormel Foods owns 50 brands, including Country Crock, Spam, Chi-Chi's, Valley Fresh, and Wholly Guacamole. Hormel Foods also recently acquired Skippy peanut butter's domestic business from Unilever for $700 million. Considering Skippy is expected to generate sales of approximately $370 million, this looks to be a good long-term deal for Hormel.

Approximately, 74% of U.S. households consumer peanut butter, so Hormel Foods has added a high-demand brand to its already impressive portfolio. More on Hormel Foods in a moment, in the meantime, let's check out Tyson Foods. 

Constant innovation
Tyson Foods produces and markets fresh, frozen, refrigerated, and shelf meats. While its product portfolio isn't as diversified as Hormel, Tyson is always looking to innovate, and innovation drives growth.

Tyson goes above and beyond expectations when it comes to innovation. It has 173 research and development members, and 45 Research Chef Association Certified culinologists. As if 45 isn't enough, Tyson has more in training. These culinologists are trained to figure out commercially viable products, which helps to align new products with the consumer. Currently, there is an emphasis on health and wellness, which matches the needs and wants of today's health-conscious consumer. 

Peer comparisons
If you look at top-line performance comparisons over the past five years, you will notice that Pilgrim's Pride trails its peers.

TSN Revenue (TTM) Chart

Tyson Foods revenue data by YCharts.

However, if you look closely, you will notice that Pilgrim's Pride has seen improved momentum recently. Therefore, it would make sense to look at some key metric comparisons to find out why. 

Company 

Forward P/E

Profit Margin

Dividend Yield

Debt-to-Equity Ratio

Pilgrim's Pride

9

5.01%

N/A

0.67

Tyson Foods

15

2.06%

0.70%

0.39

Hormel Foods

23

5.83%

1.60%

0.08

Source: Company financial statements.

Hormel Foods might be the most expensive, trading at 23 times forward earnings, but it sports the highest profit margin, it offers the highest yield, and it has demonstrated the best debt management. Actually, it's the only company of the three with a positive balance sheet: $329.50 million in cash and short-term equivalents versus $250 million in long-term debt. In today's environment, it's very difficult to find companies with positive balance sheets, since many companies are using debt to fuel growth.

If you look at the key metrics above, you will see that Pilgrim's Pride is trading at just 9 times forward earnings while sporting a solid profit margin. This is in addition to showing momentum on the top line. Potential exists, but a lack of diversification could lead to a lack of resiliency compared to its peers.

Tyson Foods is impressive fundamentally, and its innovative practices should lead to continued growth. But it's not quite as impressive as Hormel Foods, which offers better margins, broader product diversification, and a more generous yield.

The bottom line
Pilgrim's Pride anticipates improvements in beef and poultry markets, but it's not as diversified as Hormel Foods, nor is it as innovative as Tyson Foods. Hormel Foods and Tyson Foods have also showed more consistency on the top line while paying out dividends.

Superb dividend investments 
If you're looking for some long-term investing ideas, you're invited to check out The Motley Fool's brand-new special report, "The 3 Dow Stocks Dividend Investors Need." It's absolutely free, so simply click here now and get your copy today.

The article Meat Products Companies Offering Optimism, Innovation, and Diversification originally appeared on Fool.com.

Dan Moskowitz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

From Our Partners