Hain and Kellogg Make Good Organic Plays

 |  Includes: HAIN, K
by: FP Trading Desk

Wal-Mart’s (NYSE:WMT) entry into organic products last year shifted the industry firmly into the mainstream and they are here to stay, according to one analyst. With sales more than doubling in the last five years from US$1.5-billion in 2002 to US$3.5-billion in 2006, the surge in organic foods “is not transient but rather a sustainable shift in food consumption patterns with ramifications up and down the food chain,” analyst Steven Kron of Goldman Sachs said in a note to clients.

Consumer demand has moved the industry from niche and specialty players such as Whole Foods Market Inc. (WFMI) and into mainstream grocery outlets across North America, including Wal-Mart Stores Inc.

Risks in the category are that supply could be outstripped by demand, adding to cost or margin pressure, as well as “headline” risk associated with the authenticity of organic goods, Mr. Kron said.

The analyst launched coverage on Hain Celestial Group Inc. (NASDAQ:HAIN) with a “neutral” rating and a 12-month price target of US$31. His top buy in the segment is Kellogg Co. (NYSE:K), with a price target of US$58, on the strength of cereal brands such as Kashi.

HAIN vs. K 1-yr chart:
hain k chart