We recently published a list of 7 Best Beef Stocks to Buy Now. In this article, we are going to take a look at where US Foods Holding Corp. (NYSE:USFD) stands against other best beef stocks to buy now.
Global Beef Market
The beef industry encompasses various activities, including cattle farming, meat processing, distribution, and retail. The global beef market size was valued at $436.60 billion in 2023. It is projected to grow from $459.87 billion in 2024 to $656 billion by 2032, exhibiting a CAGR of 5.52%, according to Fortune Business Insights. The demand for protein, particularly sourced from animals, has consistently been high because of high global meat consumption.
According to OECD-FAO Agricultural Outlook (2021-2030), the global consumption of meat proteins is projected to grow 14% by 2030. In recent years, the demand for branded products has increased significantly. With the increase in disposable income, the market has seen substantial growth in demand for premium, high-quality beef, labeled as Certified Angus Beef, USDA Choice, USDA Natural, and others.
Consumers today are more health conscious, seeking nutritious, low-calorie foods which has significantly impacted the beef market. Moreover, people are becoming increasingly aware of the health risks associated with meat products containing growth-enhancing hormones. This is driving the demand for natural meat products. Analysts predict the global organic beef market will surge from $18.79 billion in 2024 to $31.28 billion by 2031, according to Research and Markets.
The beef industry’s activity has been high in the first half of 2024. Australia, one of the biggest players in the industry, saw its production soaring, with weekly cattle slaughter numbers around 140,000 heads, which is 20% higher than the five-year average. Furthermore, the country’s beef exports reached an all-time high of 129,998 metric tons, according to Newshub. However, the rising inflation is impacting the overall beef consumption. In Argentina, beef consumption is down by 16% this year so far, mainly driven by 300% inflation in the country.
U.S. Beef Market
The beef industry plays an important role in the United States, both economically and culturally. As a key part of the agriculture sector, the industry has a substantial impact on the country’s economy. The United States is one of the largest producers of beef, with a well-established cattle industry. As reported in our previous article on the 10 best beef stocks to buy, Angus, Hereford, and Holstein are notable breeds of cattle raised in the various regions of the United States.
As such, the U.S. beef industry is projected to grow from $108.14 billion in 2024 to $157.36 billion in 2032, according to Fortune Business Insights. Despite minor fluctuations, overall U.S. beef production has remained stable over the past years. As of November 2023, total fresh beef sales were reported at $31 billion for the trailing twelve-month period.
The U.S. beef industry faces a shrinking cattle supply, with the smallest herd since 1951. Moreover, the decline in replacement heifers is also signaling a slowdown in the herd contraction. The continued marketing of heifers has been a major factor in the contraction of cattle inventory. All U.S. beef cattle inventory reached 28.2 million head, as of January 2024. This is a reduction of 2%, or 700,000 heads, on a YoY basis. This trend is driven by drought and high input costs, which have compelled farmers to market more heifers than usual. Yet, the smaller reduction in replacement heifers indicates that herd contraction will slow down.
Nevertheless, the number of cattle on feed remains elevated, which is up by 2% from 2023. This means the current demand is being met as of now, keeping beef prices stable. However, the smaller calf crop and declining replacement heifers indicate supply disruptions in the future. Furthermore, the beef price will go up significantly in late 2024 and 2025 due to potential supply shortages. As of July 2024, the price of all fresh beef already hit $8 per pound – an all-time high.
With this, let’s now move to our list of 7 Best Beef Stocks to Buy Now.
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US Foods Holding Corp. (NYSE:USFD)
Number of Hedge Funds Holders:52
US Foods Holding Corp. (NYSE:USFD), along with its subsidiaries, is engaged in the sales, marketing, and distribution of fresh, frozen, and dry beef products to foodservice customers in the United States. The company’s customers include independently owned restaurants, national restaurant chains, nursing homes, and hotels. Based in Illinois, US Foods also serves government agencies, military organizations, and retailers.
The company recently announced the plan to expand its Stock Yards operations to 220,000-square foot space at Lexington in North Carolina. Stock Yards is the company’s exclusive brand that deals in steaks, chops, and other premium meats.
US Foods Holding Corp. (NYSE:USFD) recorded sales of $9.7 billion for the second quarter of 2024. This represents a 7.7% increase over the second quarter of the previous year. This growth was mainly driven by an increase in total case volume and food inflation of 2.9%. The total case volume increased by 5.2% YoY, driven by a 6% increase in healthcare volume and a 5.7% increase in independent restaurant case volume.
It also reported a gross profit of $1.7 billion for the second quarter of 2024. It increased by $115 million from the previous year due to the increase in total case volume, pricing optimization, and the improved cost of goods sold. However, the company’s operating expenses rose by $84 million from the prior year due to higher total case volume, increased distribution costs, and increased labor costs. US Foods Holding Corp. (NYSE:USFD) reported an adjusted EBITDA of $489 million, 13.2% higher than the prior year.
However, the company had $4.43 billion in debt as of December 2023. Investors should closely monitor whether the company can manage its debt effectively while continuing to deliver growth. Furthermore, its share price saw a downtick of 4.6% in the three months preceding August 2024, which could be attributed to concerning debt position and high operating-expenses-to-revenue ratio.
Nevertheless, in 2024, US Foods Holding Corp. (NYSE:USFD) completed the acquisition of IWC Food Services, a broad line distributor serving the Nashville area. Additionally, the company has outlined a financial strategy for 2025 through 2027, which includes growing sales at 5% CAGR and increasing adjusted EBITDA at a CAGR of 10%.
Given the company’s expansion plans and decent profitability (its EPS is on a par with the industry average of 11%), its share price has appreciated by 30% in the year so far. Also, 52 hedge funds have invested $2.6 billion in the company as of Q2 2024.
Overall, USFD ranks 2nd on our list of best beef stocks to buy now. While we acknowledge the potential for USFD to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVDA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
