Zacks Investment Ideas feature highlights: Hain Celestial, Conagra Foods and Rentech

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Oct 03, 2012, 09:30 ET

CHICAGO, Oct. 3, 2012 /PRNewswire/ -- Today, Zacks Investment Ideas feature highlights Features: Hain Celestial (Nasdaq:HAIN), Conagra Foods (NYSE:CAG) and Rentech (NYSE:RNF).

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3 Stocks for the Harvest Moon

The recent full moon was the harvest moon, which is defined as full moon closest to the autumnal equinox. The harvest moon got its name as it helped farmers gather their crops as daylight diminished. Not that I like to use the stars to pick stocks, but I am not afraid of using other celestial bodies to give investors a heads up on when it's time to harvest some profits.

I am taking a look at three food stocks and looking to see if it's time to harvest profits or leave them in the ground to grow more.

Let's start with Zacks #1 Rank (Strong Buy) Hain Celestial (Nasdaq:HAIN) and not just because "celestial" fits so nicely with my title. HAIN is a snack food producer that is just as dependent on the harvest as any of the major food companies.

The first thing I look to is the earnings estimates and how they have trended over the last year... and I see good positive trends for HAIN in 2012. Looking at 2013, I see the trend remains intact and the implied earnings growth rate has moved from 9% in March of 2012 to the current rate of 19.1%.

HAIN has produced seven straight positive earnings surprises and is slated to report at the end of October. The Zacks Consensus Estimate is calling for revenue of $378 million and $0.41 in EPS. This implies growth of revenue growth of 29% and earnings growth of 41%. That is almost the type of growth that would make Jack sneer at his beanstalk.

You would think that growth like this would come at a steep price, and is does to a degree but the other valuation metrics come in like a mixed bowl of nuts. A trailing twelve month PE of 34x is double that of the industry average, while a forward PE of 26x shows a smaller premium to the 16x industry average forward PE. The more conservative measure of price to book has HAIN just below 3x and trading at a discount to the industry average of 4x. The price to sales multiple of 2x is also showing the company trading at a discount to the 2.5x industry average multiple.

Another name that is going to be impacted by the upcoming harvest is Conagra Foods (NYSE:CAG). The company has a multitude of popular brands such as Peter Pan, Slim Jim, Hebrew National, Hunt's and my personal childhood favorite, Chef Boyardee. I am getting hungry just thinking of the Chef.

Investor gobbled up shares of CAG following its most recent earnings release on September 20, 2012. The Zacks Consensus Estimate was calling for EPS of $0.36 and the company delivered a beat of $0.08 in reporting $0.44. Revenues came in slightly higher than expected as well.

The beat marks the fourth consecutive positive earnings surprise. Following the earning release, analysts increased their earnings per share estimates and the stock rose to a Zacks #2 (Buy) ranking.

Prior to the September earnings release, analysts were expecting $1.98 in EPS for 2012 and $2.07 in 2013. Those numbers were kicked higher by 4.5% and 3.8% respectively. The current estimates of $2.07 for 2012 and $2.19 for 2013 imply an earnings growth rate of about 6%.

The valuation picture for CAG might be the real reason that most investors are looking to play the harvest. Right now, CAG is trading at a discount to the industry on several metrics that investors tend to pay close attention to.

A trailing PE of 14x is below the 17x industry average, while a cheaper forward PE of 13x is even further below the 17x industry average. On a more conservative measure, CAG is trading at a 2.4x price to book multiple and that is well below the 4x industry average. An even larger discount is present in the price to sales metric. A 0.84x multiple will bring in a lot of eyeballs as its less than 1x, and well below the 2.5x industry average.

Finally we have a play that is really more about next year's harvest than this year. We all heard about the drought and what it did to Midwest corn crops, but have we heard about how the farmers are going to need to enrich the soil for next year?

Rentech (NYSE:RNF) is in the production of natural gas-based nitrogen fertilizer and industrial products for agricultural uses. It serves the hard hit states of Illinois, Iowa and Wisconsin and farmers are going to need the fertilizers the company produces to help next year's crop.

There are only three quarters worth of earnings reports for this tracking stock, but it has two beats and one miss. The two beats are of pretty good size though, coming in at 21% and 50% ahead of the Zacks Consensus Estimate.

Earnings estimates for 2012 have moved from $2.41 in April to the current level of $3.11, an increase of 29%. Over the same time period, estimates for 2013 have moved from $2.23 to $2.97, an increase of 33%. What is surprising to me is the negative implied earnings growth rate of -4.5%.

Have closely followed this play since early July, I find the negative earnings growth rate very surprising. On the most recent conference call management noted that they were increasing prices beyond the highs of 2012. Those higher prices have, of yet, not translated into higher EPS estimates.

The valuation metrics for RNF are pretty steep. Trailing twelve months PE of 23x is well above 14x industry average. The forward PE, however, shows a much better multiple of 12x compared to the 13x industry average. Price to book is a sky high 12.5x and is many multiple higher than the industry average of 2.7x. The price to sales multiple of 7x is also well above the 1x industry average.

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