Food Processing Stocks With Most Upside (ADM, BG, TSN, SFD, CPO, CAG, KFT, SLE, GIS, K)

The companies we’re looking at today run the gamut from large farm and food products producers to the packaged goods makers that make the products on store shelves. It’s a wide range, for sure, but all are exposed to both commodity prices on one end and on consumer purchasing on the other.

Large farm products companies like Archer Daniels Midland Co. (NYSE: ADM) and Bunge Ltd. (NYSE: BG) have watch corn and wheat prices decline by about -20% and -29% since peaks earlier this year. Fertilizer prices have risen and so have fuel prices. All have an impact on revenues and earnings.

Processing companies like Tyson Foods Inc. (NYSE: TSN), Smithfield Foods, Inc. (NYSE: SFD), Corn Products International Inc. (NYSE: CPO), and ConAgra Foods, Inc. (NYSE: CAG) package private label foods, provide commercial food, and even offer some branded products. The diversity of their customers gives them a bit of a barrier against a collapse in one or another of their markets.

Packaged food giants like Kraft Inc. (NYSE: KFT), Sara Lee Corp. (NYSE: SLE), General Mills, Inc. (NYSE: GIS), and Kellogg Company (NYSE: K) are all household names and depend on strong brands to carry them through slow economic times.

Data from Yahoo! Finance, and current share prices gathered about noon today.

Archer Daniels Midland Co. (NYSE: ADM) has a median target price of $35.00 from 13 brokers. Shares are trading today at $28.88, for an implied gain of $6.12, or 21%. ADM’s forward P/E is 8.52 and the company pays a dividend yield of 2.3%. The stock’s 52-week trading range is $23.69-$38.02, and at today’s price that’s about 22% above its 52-week low and 24% below the 52-week high. This year’s wheat harvest looks to be on a near-record pace, and wheat prices are expected to fall to below $6/bushel by the end of the year from a current price of around $6.36.

Rising corn prices hit ADM hard in its most recent quarter, lowering profit in its biofuel (ethanol) division by -23% and in its sweetener and starches division by -81%. Corn prices are currently expected to remain about the same into next year, which won’t help ADM’s processing revenue. Fortunately for the company its trading profits will get a boost from the higher corn prices.

Bunge Ltd. (NYSE: BG) has a median target price of $74.00 from 11 brokers. Shares are trading today at $61.38, for an implied gain of $12.62, or 21%. Bunge’s forward P/E is 9.32 and the company pays a dividend yield of 1.6%. The stock’s 52-week trading range is $54.03-$76.13, and at today’s price that’s about 14% above its 52-week low and 19% below the 52-week high.

Bunge missed EPS estimates badly in its third quarter as the company ran afoul of volatility in the grain markets. The company painted a brighter picture for its fourth quarter, basing its view on the tightness of supply and the rising demand for food.

Tyson Foods Inc. (NYSE: TSN) has a median target price of $23.00 from 15 brokers. Shares are trading today at $19.27, for an implied gain of $3.73, or 19%. Tyson’s forward P/E is 9.53 and the company pays a dividend yield of 0.8%. The stock’s 52-week trading range is $14.79-$20.12, and at today’s price that’s about 30% above its 52-week low and 4% below the 52-week high.

Tyson will report earnings for its fourth fiscal quarter on November 21st. The consensus EPS estimate is $0.32, half as much as the same period a year ago. Rising feed costs have hammered revenues and earnings this year, and Tyson and other chicken producers are trying to get its customers to share commodity price risk by taking shorter term contracts tied to the cost of feed grains.

Smithfield Foods Inc. (NYSE: SFD) has a median target price of $24.50 from 12 brokers. Shares are trading today at $22.41, for an implied gain of $2.09, or 9%. Smithfield’s forward P/E is 9.16 and the company does not pay a dividend. The stock’s 52-week trading range is $15.93-$24.93, and at today’s price that’s about 41% above its 52-week low and 10% below the 52-week high.

Smithfield’s CEO made an open market purchase of 50,000 shares in early October, at an average price of $18.71/share. That’s a nifty 20% profit in about a month, and the company’s share continue to inch toward the price target. If only the company paid a dividend.

Corn Products International Inc. (NYSE: CPO) has a median target price of $60.00 from 9 brokers. Shares are trading today at $50.31, for an implied gain of $9.69, or 19%. Corn Products’ forward P/E is 10 and the company pays a dividend yield of 1.3%. The stock’s 52-week trading range is $36.65-$59.50, and at today’s price that’s about 37% above its 52-week low and 15% below the 52-week high.

Corn Products beat earnings estimates last week and raised its full-year EPS guidance from $4.85-$5.15 to $5.05-%5.15, well above current analyst estimates of $4.54. The company also noted that it had been able to raise prices to offset the cost increases on its raw materials.

ConAgra Foods, Inc. (NYSE: CAG) has a median target price of $26.00 from 10 brokers. Shares are trading today at $25.26, for an implied gain of $0.74, or 3%. ConAgra’s forward P/E is 15.46 and the company pays a dividend yield of 3.8%. The stock’s 52-week trading range is $21.02-$26.60, and at today’s price that’s about 20% above its 52-week low and 5% below the 52-week high.

ConAgra recently boosted its dividend by about 4%, to $0.96 annually. The company posts the highest dividend yield among the shares we’re looking at today, and its strong consumer brands should continue to drive the share price through the current target.

Kraft Inc. (NYSE: KFT) has a median target price of $40.00 from 17 brokers. Shares are trading today at $35.92, for an implied gain of $4.08, or 11%. Kraft’s forward P/E is 14.3 and the company pays a dividend yield of 3.4%. The stock’s 52-week trading range is $29.80-$36.30, and at today’s price that’s about 21% above its 52-week low and 1% below the 52-week high.

Ever since Kraft announced that it would split itself into a snack foods company and a grocery business, the company’s performance has improved. The split is expected to be complete by the end of 2012, and it will be interesting to see if the parts will do as well as the whole is now doing.

Sara Lee Corp. (NYSE: SLE) has a median target price of $19.00 from 9 brokers. Shares are trading today at $18.55, for an implied gain of $0.45, or 2%. Kraft’s forward P/E is 17.9 and the company pays a dividend yield of 2.6%. The stock’s 52-week trading range is $14.48-$20.26, and at today’s price that’s about 28% above its 52-week low and 8% below the 52-week high.

Sara Lee reported adjusted EPS today that beat the consensus estimate of $0.17 by a penny. Unadjusted, however, the company posted an EPS loss of -$0.37, attributable to the company’s recent shedding of some of its businesses. Like Kraft, it will split into two companies in a spin-off that is expected to close by mid-20123.

General Mills, Inc. (NYSE: GIS) has a median target price of $42.00 from 15 brokers. Shares are trading today at $38.70, for an implied gain of $3.30, or nearly 9%. General Mills’ forward P/E is 13.67 and the company pays a dividend yield of 3.2%. The stock’s 52-week trading range is $34.54-$40.25, and at today’s price that’s about 12% above its 52-week low and 4% below the 52-week high.

General Mills’ share price has fallen by about $1.00 in the last month for no really good reason. It has been able to cover the increases in its raw materials costs by raising prices, and low inflation expectations for next year are a positive for the company’s profit outlook.

Kellogg Company (NYSE: K) has a median target price of $60.00 from 16 brokers. Shares are trading today at $50.10, for an implied gain of $9.90, or nearly 20%. Kellogg’s forward P/E is 13.27 and the company pays a dividend yield of 3.2%. The stock’s 52-week trading range is $48.51-$57.70, and at today’s price that’s about 3% above its 52-week low and 13% below the 52-week high.

Kellogg shares closed yesterday at $54.04, but are getting pounded today following a disappointing earnings report. The company also lowered its full-year EPS guidance to a maximum of $3.40, well below the current consensus estimate of $3.48. Earnings were hit as the company is spending money to address infrastructure problems.

Paul Ausick