Zacks
0
All posts from Zacks
Zacks in Our Research. Your Success.,

Aramark or B&G Foods: Which Stock is More Enticing Now?

The food and beverage companies have been facing a number of headwinds of late. Continuous shift in consumer purchase decisions, evolving shopping behavior and increasing presence of small firms are constantly plaguing the industry. As the small companies are entering the market space, it is becoming tough for the existing players to retain their position. Further, there has been a shift in consumer preference as they are more inclined toward the non-genetically modified, organic, and gluten free products. Also, there is an industry-wide weakness, as deflationary pressure in commodities such as dairy, beef and eggs are hurting the margins of food companies.

Food companies are undertaking aggressive efforts and channeling funds toward product and packaging innovation along with reformulation of many existing products with more nutritional benefits. However, persistent headwinds like food deflation, stiff competition, and aggressive promotional environment are expected to continue to hurt the food grocers in the near term.

The recent news of e-Commerce king Amazon.com, Inc. AMZN entering into the grocery segment with its all-cash $13.7 billion deal (signed on Jun 16) to acquire the natural and organic foods supermarket chain Whole Foods Market Inc. WFM has further raised concerns. If the deal gets a nod, Amazon might lower grocery prices, thus giving a great blow to grocery stores and supermarkets as they may experience pricing pressure and lose customers.

Some investors also worry that Amazon's entry would squeeze profit margins in an industry already known for stiff competition and tight margins. These concerns have significantly hurt the share price of big grocers and washed out about $35 billion market value of the majority of supermarkets, food producers, shopping malls and payment processors in the U.S. market.

The not-so-impressive scenario in the food/grocery industry is evident from the fact that out of the 260-plus industries, the Food-Miscellaneous/Diversified industry is placed at bottom 37% of Zacks classified industries and holds a Zacks Industry Rank #161. To learn more visit: About Zacks Industry Rank.

Having said this, let’s try to ascertain which of these two key food players – Aramark ARMK and B&G Foods, Inc. BGS, presently make for a better investment option.

Zacks Rank

Both the stocks carry a Zacks Rank #2 (Buy), which highlights the fact that it is likely to outperform the broader market over the next one to three months. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Market Capitalization

Aramark’s market capitalization is $10.13 billion, while that of B&G Foods is just $2.46 billion. Going by its business size, Aramark is better positioned over the long term owing to its massive scale of operations.

Surprise History

NJ-based B&G Foods have posted negative sales surprise in six of the last seven consecutive quarters. We are particularly concerned about B&G Foods’ weak base business growth due to falling unit volumes. Also, the North American food industry has been witnessing sluggish growth and slowdown in consumption over the last few quarters due to a soft consumer spending environment. This shelf-stable and frozen food company has witnessed positive earnings surprise in five out of the seven consecutive quarters.

On the other hand, Philadelphia-based Aramark has been delivering strong, broad-based productivity improvements in North America and International base accounts. It has also been reinvesting in technology and capabilities. The provider of food, facilities and uniform services has witnessed positive earnings surprise in six out of the seven consecutive quarters, along with in-line results in the remaining one. It has also posted positive sales surprise in four of the seven consecutive quarters.

VGM Score

We note that the VGM score is a comprehensive tool that will allow investors to filter through the standard scoring system and choose better winning stocks. In order to screen out potential winning stocks, we consider only those that have a Zacks Rank #1 or 2 and a VGM score of ‘A’ or ‘B’. Since we are considering stocks with a Zacks Rank #2, we should opt for a better grade.

In that case, Aramark seems to outpace B&G Foods on VGM Score as well, as Aramark’s score of ‘A’ is favorable than B&G Foods’ VGM score of ‘B’. Hence, we should consider it a favorable investing option.

Price Performance

The performance of the companies is well-reflected in the prices over the past one year. While shares of B&G Foods have underperformed the Zacks categorized Food-Miscellaneous/Diversified industry, those of Aramark have significantly outpaced the sub-industry. Shares of Aramark improved significantly by 27.8%, while B&G Foods has slumped 21.4% since the past one year. The industry has declined 6.1% since last year.

 

Estimate Revisions

Upward estimate revisions are indicative of positive investor sentiment about a stock. The Zacks Consensus Estimate for Aramark has increased 2.3% for fiscal 2017 and improved 2.0% for fiscal 2018 over the last 60 days. On the other hand, the Zacks Consensus Estimate for 2017 increased 0.9% for B&G Foods, while the same has gone down 2.1% for 2018 over the last 60 days, rendering a doubt on the stock.

Aramark’s earnings for the third and fourth quarter of fiscal 2017 are expected to grow by 17.5% and 9.8%, respectively. The growth rate is however unfavorable in the case of B&G Foods, where earnings per share are projected to contract 14.9% and 8.0% for the next two quarters of 2017.

The above arguments clearly state that Aramark is better placed currently and should offer great value to investors.

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 - Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2% respectively.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation. See Them Free>>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Amazon.com, Inc. (AMZN): Free Stock Analysis Report
 
B&G Foods, Inc. (BGS): Free Stock Analysis Report
 
Aramark (ARMK): Free Stock Analysis Report
 
Whole Foods Market, Inc. (WFM): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research