US Food Outlook for 2025

Investing.com – The U.S. food sector appears to be undervalued relative to the broader market, raising questions among investors about whether this is a good opportunity to enter, Bernstein analysts said in a note.

The sector, which underperformed the market by more than 30% in 2023 and 2024, is now trading at its cheapest levels in two decades. This estimate is despite the sector’s business figures being in line with the 20-year average on an EV/EBITDA basis, according to Bernstein’s analysis.

But despite the attractive valuations, the investment bank warns investors of potential headwinds that could make the sector a value trap. Taking GLP-1 drugs and staying away from highly processed foods are major concerns.

However, a silver lining appears in the form of improved consumer sentiment among low-income households, which could reduce the “value-seeking behavior” that hit companies in 2024, analysts said.

Bernstein emphasizes the importance of monitoring the FDA’s shortage lists in 2025, as GLP-1 drug use continues to influence the number. Pill versions of these drugs are expected to hit the market in 2026.

External studies show that the adoption of GLP-1 affects the consumption of processed foods, which can affect the sale of very sweet and salty foods, as well as fries and burgers in the center. fast food restaurants (QSR).

Regulatory challenges could also arise, Bernstein notes, especially if Mr. RFK Jr. he was appointed to a position where he can influence the food policy. His policies may include banning some food additives or banning additives that are already banned in the European Union.

“In fact, companies can easily change their products at low cost to respond to such a regulation,” said analysts led by Alexia Howard.

“But it’s the effect of the media’s focus on the link between healthy food choices and chronic health conditions in the minds of consumers that can have the biggest impact on eating habits, as it was doing back in 2012 during the GMO writing bill in California,” they added.

Apart from these important factors, analysts also point to the increasing costs of products such as cocoa and coffee, while other input costs remain stable. To support the numbers, companies may need to increase marketing activities.

In terms of merger and acquisition (M&A) activity in this sector, analysts expect it to continue throughout the year, with Simply Good Foods (NASDAQ: ) identified as a potential acquisition target. Activist participation can also lead to broader coordination among major industry players.

The research firm concludes with its top picks in the sector, favoring Mondelez (NASDAQ:), McCormick (NYSE:), Simply Good Foods, and Hain Celestial (NASDAQ:) for long positions.