Introduction

The firms being analysed in the following research report are part of to the US
processed meat market. The market includes meats that have been preserved by smoking or
salting, curing or adding chemical preservatives. The processed meat industry can be
primarily segregated on the basis of meat type – beef, pork, mutton, chicken, etc.
Alternatively, the market can also be broken down by product type into chilled, frozen and
canned/preserved. The industry consists a range of traditional meat processors like National
Beef, Hormel Foods Corp., Pilgrim’s Pride Corp., Tyson Foods, Inc. and Sanderson Farms
Inc. (incorporated by Cargill Inc. and Continental Grain Co. in 2021) along with plant-based
meat producers like Beyond Meat, Inc., Impossible Foods Inc. and MorningStar Farms.

Market outlook
The size of the United States processed meat market stood at $28 billion in 2020 and
is expected to grow at a compounded rate of 4% over the coming years. As per a report from
Business Wire, the market is expected to grow by $5.4 billion by 2025 primarily owing to
innovations in the field of packaging (including better processes like salting, curing and
smoking) along with changing demographics. The growth in disposable income and an
enhanced interest amongst younger population towards protein and energy intake is cited as a
major reason for growing demand of processed meat and easy-to-eat food products. In terms
of the size, the market is dominated largely by beef products though the preference of white
meat amongst customers would drive the market further (CAGR of 4.1% from 2021 to 2028).

Industry Dynamics
The following section analyses the external factors that can impact the future financial
performance of the industry. Porter’s five forces is one of the most widely used techniques
which understands the factors that are important for the industry:
 Threat of new entrants High
High threat of new entrants as there are low barriers to entry and any innovation in the
space of food preservation can enhance the competition in the space as new players
can take away the market from existing players.
 Bargaining power of suppliers Low
There are wide range of suppliers available to the industry ranging from small farmers
to larger corporates. The product offerings have limited variation and hence the
suppliers offer limited threat for the industry
 Bargaining power of buyers Moderate
Changing consumer preferences and an enhanced preference towards healthier (low
carb food) can negative impact the performance of the industry. Although, the vast
population and an emerging young population is a strong positive for the business.
 Threat of substitutes High
Rise of new substitutes like plant-based meat products and other sources rich in
protein indicates a high level of threat from substitutes. Considering that there is a
vast level of innovation and disruption in the industry, this threat is a major force for
the industry.
 Rivalry amongst competitors High
The industry is competitive and there is limited variation in products offered by
different firms. Also, since the pricing is a key in the industry, there is high level of
competitiveness amongst players in the firm.
Investment Decision: Player level

1. Beyond Meat (BYND) BUY

Beyond Meat is an American company that specializes in plant-based meat
substitutes. The firm was founded in 2009 and has a broad portfolio aimed at offering
consumers a wide range of products that replicate the taste and texture of meat
products. As of 13th December 2021, the stock is currently priced at $64.51. At the
current financial performance, the firm has not generated positive profits which
indicates that the PE ratio (Price to earnings ratio) for the firm is unavailable (-107.52
based on actual profitability in 2020). Based on projected earnings, it can be expected
that the firm would turn profitable only in 2023. However, the firm has seen a strong
growth in sales over the last year (up 36% since 2019) and as more and more
customers open up to plant-based meat consumption and become health conscious,
Beyond meat has a strong outlook

2. Hormel Foods Corp. (HRL) HOLD

Hormel Foods is an American company that has been in business of food processing
for more than a hundred years. The firm specializes in packaging and selling of ham,
sausage and pork, beef and lamb products. The stock is currently trading at $45.8
which is much lower than the price in the last 12 months. The stock is trading at a PE
ratio of 24.5 after increasing from the level of 22.7 in 2019 (higher than the industry
average). As per the report from CNN, 11 of the 13 analysts suggest holding the stock
which shows that the stock has a high potential in the coming periods. Considering
that the value is in line with the industry average, I would hold the stock.

3. Pilgrim’s Pride Corporation (PPC) SELL

Pilgrim’s pride corp. is one of the largest producers of chicken in the United States.
The firm is headquartered in Colorado (since 2011). It has presence in countries
outside the home market (second largest player in Mexico) coupled with sizeable
presence in Europe and UK. The current share price of the firm is $28 (on December
13, 2021) at the current Price to earnings ratio (PE ratio of 12.62). With sales growing
at little over 6% in the last year, the firm is expected to grow in line with the industry.
All the five analysts tracking the stock expect the stock to perform in line with the
market. The median stock target comes to be lower than the current price of $28
which indicates that the stock is expected to slip.

4. Sanderson Farms (SFM) BUY

Sanderson Farms is an American Poultry producer. It is the thirds largest player in the
list with production of 13.65 million chickens per week. The firm had a PE ratio of
10.35 as sales grew by 36% in 2021 compared to a 3% growth last year (partly driven
by COVID induced isolation). The analyst median price target is $203 (an upside of
8% with respect to current price of $189). The reason for high growth is the
dedication toward poultry business which is one of the fastest growing industries.
Additionally, the PE ratio of the firm is also much lower compared to the industry
indicating high growth potential.
 5. Tyson Foods (TFC) BUY
Compared to other players analysed, Tyson foods is a broader conglomerate operating
in the food industry. The firm is the second largest processor and marketer of chicken,
beef and meat. At the current trading price of $83.7, the firm is trading at a PE ratio of
10.55 which is much lower than other players in the industry. The analyst prediction
of the stock price shows a median price of $90 (an upside of almost 10%).
Additionally, the firm has a wide portfolio which further enhances the risk appetite of
the firm. The firm is a large exporter of beef which happens to be the major area for
the industry. Considering the potential, the stock is expected to grow.

References

https://www.businesswire.com/news/home/20210615005688/en/North-America-Processed-
Meat-Market-Size-Share-Trends-Analysis-Report-2021---ResearchAndMarkets.com
https://www.grandviewresearch.com/industry-analysis/north-america-processed-meat-market
https://www.meatinstitute.org/index.php?ht=d/sp/i/47465/pid/47465
https://www.fortunebusinessinsights.com/industry-reports/processed-meat-market-100556
https://money.cnn.com/quote/forecast/forecast.html?symb=TSN
https://money.cnn.com/quote/forecast/forecast.html?symb=HRL#:~:text=Stock%20Price
%20Forecast,the%20last%20price%20of%2046.02.
https://money.cnn.com/quote/forecast/forecast.html?symb=bynd#:~:text=Stock%20Price
%20Forecast,the%20last%20price%20of%2064.51.