The M&A market appears to be on fire.  Which food stocks will be bought out next?

The largest buyout in nearly a decade and a half is spurring interest in the fast-growing organic and natural foods market, and rightfully so.

General Mills (NYSE: GIS) is paying quite a premium to buy up Annie’s (NASDAQ: BNNY).

The buyout is a 37% premium to Annie’s share price prior to the announcement. The near-40 times EV/EBITDA (enterprise value-to-earnings before interest, taxes, depreciation and amortization) multiple makes this the most expensive buyout since the 2000 buyout of Ben & Jerry’s.

The recent frenzy over natural foods companies comes as there are plenty of low-growth companies that need a boost to earnings.

These include the likes of Campbell Soup Co. (NYSE: CPB), Kraft Foods Group (NASDAQ: KRFT) and Kellogg (NYSE: K). All three are expected to grow earnings by an annualized rate in the low single digits for the next five years.

food-stocks

So what could be the next food company buyout?

One place to start looking is with companies that are expected to grow earnings by double digits over the next five years. Here are the three food stocks you should snap up  before someone else does:

No. 1: WhiteWave (NASDAQ: WWAV)

This food company is one of the fastest-growing companies in the natural foods space. It’s focused on plant-based beverages (think: soy, almond and coconut milk), which has been taking market share from diary-based milk. It also has a large presence in coffee creamers and cold coffee beverage markets.

WhiteWave is expected to grow EPS at an annualized 21% over the next half-decade, which is the highest of our three food stocks listed. And with a $6 billion market cap, it is well within the buyout budget for a large company like Kraft Foods Group.

Earlier this month, WhiteWave snatched up So Delicious for $200 million. This increases WhiteWave’s presence in the plant-based beverage space, while also giving it a leading position in plant-based frozen desserts;  So Delicious is the top manufacturer of plant-based desserts in the United States.

No. 2: TreeHouse Foods (NYSE: THS)

Although it’s not a pure play on the natural foods industry, TreeHouse is  still a compelling investment. It’s a food manufacturer of private-label products (think: store brands) including mac & cheese, jams, soups, salad dressings and sauces. TreeHouse is also cheaper than some of the natural foods companies, trading at a forward P/E ratio (price-to-earnings ratio based on next year’s earnings estimates) of 18.5 and an EV/EBITDA multiple of 14.

The company has a couple of exciting opportunities that make it a growth story. First is its focus on single-serve coffee. It’s the largest manufacturer of private label K-cups. TreeHouse has had great success in the coffee pod market thanks to its ability to price its store-branded K-cups lower than Keurig or Starbucks (NASDAQ: SBUX) branded K-cups.

Second, TreeHouse is getting into the natural foods space. This is a natural progression given some of TreeHouse’s biggest customers (e.g., Kroger and Safeway) are making a big push to offer inexpensive store-brand natural and organic foods.

No. 3: The Hain Celestial Group (NASDAQ: HAIN)

Hain Celestial is a maker and distributor of natural and organic products. This stock trades at forward P/E ratio that’s just above TreeHouse, coming in at 23x, but it does have the lowest debt-to-equity ratio of all three — at 54%.

While TreeHouse caters to the more conventional grocers, Hain Celestial services the organic grocers, including Whole Foods (NASDAQ: WFM), Sprout Farmers (NASDAQ:SFM) and United Natural Foods (NASDAQ: UNFI). Hain Celestial also has a jump on expanding into fast-growing international markets —it generates some 40% of its revenues from outside the United States.

Among the few other food companies with double-digit earnings growth potential over the next five years is Post Holdings (NYSE: POST). But it’s important to not just focus on growth.

Post Holdings is less attractive than our top three due to  top-line pressure on its business from  the decline in cereal consumption. It also trades at a high forward P/E ratio of 42.

Buying stocks on buyout speculation is never a sound investment strategy. However, buying strong companies with impressive growth opportunities that could also be buyout candidates is strategy worth pursuing.

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Published by Wyatt Investment Research at