US Food outlook for 2025 – M&A, GLP-1s and RFK Jr

Investing.com — The US food sector appears very inexpensive relative to the broader market, raising questions among investors whether this is a good entry opportunity, Bernstein analysts said in a note.

The sector, which underperformed the market by more than 30% in both 2023 and 2024, is now trading at its most affordable level compared to the in over two decades. This valuation is despite the sector’s trading figures aligning with its 20-year average on an EV/EBITDA basis, according to Bernstein’s analysis.

But despite the attractive valuation, the investment bank cautions investors of potential volume headwinds that could render the sector a value trap. The uptake of GLP-1 drugs and a shift away from heavily processed foods are primary concerns.

Still, a silver lining appears in the form of improved consumer sentiment among low-income households, which may reduce the “value-seeking behaviors” that negatively impacted companies in 2024, analysts said.

Bernstein highlights the importance of monitoring the FDA shortage lists in 2025, as GLP-1 drug uptake continues to influence volumes. Pill versions of these drugs are expected to hit the market in 2026.

External studies indicate that GLP-1 adoption is significantly affecting the consumption of processed foods, which could particularly impact the sales of sweet and salty snacks, as well as fries and burgers in the quick-service restaurant (QSR) channel.

Regulatory challenges could also arise, Bernstein notes, especially if Mr. RFK Jr. is appointed to a position where he could influence food policy. His potential policies might include banning certain food additives or restricting a broader set of additives already banned in the European Union.

“At face value the companies could reformulate their products fairly easily at a relatively low cost to respond to such regulation,” analysts led by Alexia Howard said.

“But it is the impact of greater media focus on the links between healthy food choices and chronic health conditions in the minds of consumers that could have a bigger impact on food eating trends, much as it did back in 2012 around the time of the GMO labeling bill in California,” they added.

Beyond these key points, analysts also point out surging costs for commodities like cocoa and coffee, while other input costs remain relatively stable. To support volumes, companies may need to increase promotional activities.

In terms of mergers and acquisitions (M&A) activity in the sector, analysts expect it to continue throughout the year, with Simply Good Foods (NASDAQ:) identified as a likely acquisition target. Activist involvement could also drive broader consolidation among larger 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.