NEW YORK (TheStreet) -- Bird flu be damned, packaged goods companies that produce chicken and egg products are still good buys, says TheStreet Ratings.
The U.S. is suffering from an avian flu outbreak with 15 states (and counting) reporting cases affecting turkeys and chickens, according to The New York Times.
Bird flu is a major concern for large poultry companies like Tyson Foods (TSN), Pilgrim's Pride (PPC) and Sanderson Farms (SAFM) as well as egg producers. Chicken and egg prices are rising as a result of the epidemic as companies cut supply in order to stem the outbreak. Some stocks could benefit.
The stock surged earlier this week following a $16 price target hike by Sidoti & Co. to $67 "citing better egg pricing power following a shortage of egg-laying hens due to the outbreak."
Cal-Maine Foods is rated "buy, A+" by TheStreet Ratings. Here are two other poultry-related packaged food companies that TheStreet Ratings is particularly bullish on. And when you're done, be sure to check out which retailers to add to your portfolio.
TheStreet Ratings, TheStreet's proprietary ratings tool, projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Based on 32 major data points, TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.
Buying an S&P 500 stock that TheStreet Ratings rated a "buy" yielded a 16.56% return in 2014 beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a "buy" yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.
Note: Year-to-date returns are based on May 14, 2015 closing prices.
3. Industrias Bachoco SAB (IBA)
Market Cap: $2.9 billion
Rating: Buy, A
Year-to-date return: 16.5%
Industrias Bachoco, S.A.B. de C.V., through its subsidiaries, operates as a poultry producer in Mexico and the United States. The company primarily engages in breeding, processing, and marketing of chicken, eggs, swine, and balanced animal feed.
"We rate INDUSTRIAS BACHOCO SAB DE CV (IBA) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance, impressive record of earnings per share growth and compelling growth in net income. We feel its strengths outweigh the fact that the company shows low profit margins."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 10.3%. Since the same quarter one year prior, revenues slightly increased by 1.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
- IBA's debt-to-equity ratio is very low at 0.11 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 3.05, which clearly demonstrates the ability to cover short-term cash needs.
- Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period. Although other factors naturally played a role, the company's strong earnings growth was key. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- INDUSTRIAS BACHOCO SAB DE CV reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, INDUSTRIAS BACHOCO SAB DE CV increased its bottom line by earning $5.33 versus $3.11 in the prior year. This year, the market expects an improvement in earnings ($6.23 versus $5.33).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Food Products industry. The net income increased by 64.0% when compared to the same quarter one year prior, rising from $50.53 million to $82.87 million.
- You can view the full analysis from the report here: IBA Ratings Report