Which Of These 4 Food Companies Should You Buy Today?

Includes: BGS, HSH, KHC, MDLZ
by: Richard Evans

U.S.-based packaged food companies have been experiencing a saturated market in the U.S. Too much competition means companies either have to get creative or get global to widen their consumer base. In fact most of the big names are moving towards developing markets. So, the best value will be offered by the company which is able to utilize its existing infrastructure to establish its brand in emerging markets.

I looked at a mixed basket of food stocks to see how they are or are not expanding their markets. In each case some form of Merger and Acquisition or spinoff is involved. Each have different approaches to dealing with the crowded North American packaged food market and offsetting themselves from their competition.

Which are the best to buys now for long term growth? The candidates are B&G Foods Inc. (NYSE:BGS), Hillshire Brands Company (NYSE:HSH), Kraft Foods Group, Inc. (KRFT), Mondelez International, Inc. and (NASDAQ:MDLZ).

B&G Foods Inc.

Financials: BGS recent closing price was $30, within a 52-week trading range of $20.57 - $32.84. The company declared a quarterly cash dividend of 29 cents per share of common stock, payable on January 30, 2013 to stockholders of record on December 31, 2012, while the annual yield on the dividend is 4.1% and payout ratio is 81%.

BGS Chart
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BGS data by YCharts

BGS currently trades at a Price to Earnings ratio ((NYSE:PE)) of 23.44 with earnings per share (EPS) of $1.28. Company has a current ratio of 2.23. It has profit margin of 10.15% and operating margin of 23.6%.

Profile & Recent News: BGS is turning into a big food company using small, niche brands that have wide moats, strong margins and limited competition. In fact it is building an empire using brands with target markets too small for bigger companies to consider. B&G is a serial acquirer, buying out small companies or prying brands away from larger companies.

For example B&G announced last month that it has entered into an agreement to acquire the New York Style and Old London brands from Chipita America, Inc. for approximately $62.5 million in cash. These brands will add to its ongoing list of offerings like Ortega Mexican Foods, Cream of Wheat, Underwood Meats and many others.

B&G has a reputation for being a dividend machine and in fact the current dividend is near historical lows:

BGS Dividend Yield Chart
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BGS Dividend Yield data by YCharts

BGS recently closed a public offering of 4,173,540 shares of its common stock, with proceeds from the offering to be used for meeting general corporate expenses, which may include repayment of the company's long-term debt and expenditures towards the acquisition of the New York Style and Old London brands and any acquisitions that may take place in the future.

I have recently been advising away from B&G because of the dilution effects of the PO. However now that it is ended I expect revenues to surge and the dividend to steadily grow. I consider the company to be a strong buy for dividend growth investors.

Hillshire Brands Company

Financials: HSH recent closing price was $25.48, within a 52-week trading range of $23.86 - $30.76. The company pays a quarterly dividend $0.125 per share, annual yield on the dividend is 2% and payout ratio is 66%. HSH currently trades at a Price to Earnings ratio (PE) of 3.59 with earnings per share of $7.10.

HSH Chart
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HSH data by YCharts

The company has a current ratio of 1.20. It has profit margin of 20.64% and operating margin of 8.18%.

Profile & Recent News: Hillshire is a recent spinoff of the iconic Sara Lee Corp (SLE) and is a leader in meat-centric food products for the retail and food service markets. Hillshire Brands portfolio includes iconic brands such as Jimmy Dean, Ball Park, Hillshire Farm, State Fair, Sara Lee frozen bakery and Chef Pierre pies, as well as artisan brands Aidells and Gallo Salame.

Hillshire Farms expects flat sales for the new fiscal year, and operating segment income would be flat to down due to investments in marketing and innovation. Its main priority is on strengthening the company's core brands, although management also states they will be looking into new markets as well as acquisitions.

While I love Hillshire Farm products - I am closely addicted to their summer sausage - I want to see a few quarters go by to see what direction management takes in its new, independent guise. This is a watch for me.

Kraft Foods Group, Inc.

Financials: KRFT recent closing price was $45.30, within a 52-week trading range of $42.00 - $48.00. The company pays a quarterly dividend of $0.29 per share, or $1.16 annualized, with yield on the dividend at 2.8% and payout ratio is 77%. KRFT currently trades at a Price to Earnings ratio (PE) of 14.20 with earnings per share of $3.19.

KRFT Chart
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KRFT data by YCharts

The company has a current ratio of 1.40. It has profit margin of 10.08% and operating margin of 16.39%.

Profile & Recent News: KRFT is the spin-off its mature North American grocery business from the old Kraft Foods. Kraft has a strong North American presence with a number of popular, bellwether brands, including Kraft, Oscar Mayer and Maxwell House.

Kraft has warned that proposals to impose deep cuts on the $75bn U.S. food stamp program could eat into profits at food companies that rely on low-income customers stocking up on snacks and drinks. I do believe that Kraft will settle in post spinoff and become a strong free cash flow and dividend generator, I so nothing that allows for any long term growth. I would avoid Kraft at this time.

Mondelez International, Inc.

Financials: MDLZ recent closing price was $26.60, within a 52-week trading range of $26.18 -$ 42.54. It currently trades at a Price to Earnings ratio (PE) of 13.23 with earnings per share of $2.01. The company has a current ratio of 1.23. It has profit margin 0f 6.62% and operating margin of 13.72%.

MDLZ Chart
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MDLZ data by YCharts

Profile & Recent News: Mondelez is the worldwide wide spinoff of the old Kraft Foods. MDLZ announced an expanded effort to make its coffee business more sustainable, by investing a minimum of $200 million to empower one million coffee farming entrepreneurs by 2020. MDLZ has a high growth potential as it gets 44% of its revenue from emerging markets, also its has 75% of its revenue tied to the fastest-growing products in packaged food such as gum, candy, chocolate and biscuits, where it enjoys top or second largest market share.

From where I live in Ecuador, I see the Mondelez products exploding in brand awareness in South America. Cadbury, Nabisco and Oreo are growing by leaps in bounds throughout Asia and South America and I see long term growth as incredibly strong. I consider Mondelez a strong buy for almost all investors.

Disclosure: I am long MDLZ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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