2 Avocado Stocks Proving the Superfood Can Be a Super Investment

September 18, 2024 at 08:30 AM EDT

Top above overhead view close-up photo of avocado row isolated on yellow background

Rich in antioxidants like Omega 3, magnesium, potassium, fiber, and lutein, as well as nutrients, including vitamins A through E and K, the avocado is a superfood (and a fruit). Last year, the United States imported a new record of 2.8 billion pounds of avocados from Mexico, the world's largest supplier. The superfood continues to gain popularity, and producers continue to see their stocks grow just as well. Here are two avocado stocks that prove they aren't just a superfood but can also be a super investment.

The Diversified Play: Calavo Growers

Calavo Growers Inc. (NASDAQ: CVGW) is a global leader in the fresh produce industry. This consumer staples sector company is best known for procuring, sorting, packing, marketing, and distributing avocados to grocers, food distributors, and food service customers. It also processes and distributes tomatoes, Hawaiian papayas, guacamole, and dips.

Calavo was originally launched as The California Avocado Growers Exchange in 1924 and changed to Calavo in 1926. In 1949, the company expanded from avocados to include Hawaiian papayas. Calavo was the first U.S. company to open an avocado packing facility in Mexico. It was also the first publicly traded avocado company in the United States when it went public in 2002.

Calavo Is An Asset-Light Business

As Vital Farms Inc. (NASDAQ: VITL) does with eggs, Calavo doesn’t actually own farms but partners with farmers to source their produce. This makes it an asset-light business that doesn’t bear the risk and expenses that come with owning and operating farms. However, it does have packing facilities called "packinghouses" in Mexico, including a state-of-the-art packinghouse in Jalisco, Mexico, opened in 2016. Avocados are its number one product.

Avocados Continue to Drive Growth for Calavo

Avocado prices and volume continue to rise, driving Calavo's growth. The company reported fiscal third-quarter 2024 EPS of 57 cents, beating consensus analyst estimates by 14 cents. Revenues climbed 11.7% YoY to $179.6 million, beating consensus estimates of $178.67. The Grown segment generated a 13.3% YoY net sales increase to $163.2 million. Strong avocado margins drove this despite a temporary disruption to supplies in Mexico.

Calavo Growers CEO's Upbeat Comments and Doubling the Dividend

Calavo Growers CEO Lee Cole pointed out the company sold its Fresh Cut segment and will be using proceeds to bump up its dividend and invest in its avocado and guacamole business with new products launching next quarter.

Cole commented, “Our momentum has carried into the fourth quarter, and we look forward to delivering solid financial results for the fourth quarter and fiscal year. We intend to deploy the cash that we generated from the sale of our Fresh Cut business by investing in our core avocado and guacamole businesses and by returning cash to shareholders over time.”

The Board of Directors doubled the cash dividend to 20 cents per share, to be paid Oct. 30, 2024, to shareholders of record on Oct. 2, 2024. CVGW is trading up just 0.34% year-to-date (YTD). It has just one analyst covering the stock with a hold rating and a $32.00 price target.

Mission Produce: The (Almost) Pure-Play Bet

While Calavo Growers offers a diversified product line, its core business remains avocados. Until 2021, Mission Produce Inc. (NASDAQ: AVO) was solely focused on avocados, a fact reflected in its stock symbol—AVO. That changed when it expanded into mangos.

Mangos are another superfood high in nutrients, including vitamins A-E, folate, fiber, potassium, and mangiferin. After 40 years of sourcing, packing, marketing, and distributing avocados, Mission Produce added mangos to its line-up. This was a great decision since mangos are off-season compared to avocados. It enables the company to optimize its production with the seasonality of mangos (May through October) and avocados (November through April). However, avocados from Mexico are in season around the year.

Mission Produce also added another superfood, blueberries. These are a very small fraction of total revenue. There's little information on when they added blueberries to the line-up, but they started reporting blueberry sales in 2022.

Mission Produce Is a Vertically Integrated Operation

Mission Produce owns and operates farms in Mexico, Peru, Guatemala, South Africa, and California. It is a vertically integrated business. Mission farms the avocados that get shipped to their ripening centers, then packinghouses, and hit their distribution network. The marketing and sales team promotes the brand and manages the sales. While they can generate higher revenues, they also take on weather risk, which they encountered in Peru with El Nino. Weather is the primary risk every quarter and the key factor that impacts growing conditions and harvest.

Superfoods Driving Super Results for Mission Produce

Mission Produce reported fiscal third-quarter 2024 EPS of 23 cents, crushing analyst expectations by 20 cents. Revenues surged 24% YoY to $324 million, which handily crushed consensus estimates of $231 million. Adjusted EBITDA rose 49% YoY to $31.5 million. International Farming revenues were $27.4 million. Blueberries generated $1.6 million in the quarter.

Mission Produce's Outlook for the Fiscal Fourth-Quarter 2024

Mission Produce expects industry volumes to be flat to slightly lower for the rest of fiscal 2024. While Peru and California harvest seasons conclude, Mission will transition to its Mexico-centric source model. Pricing is expected to decrease sequentially but remain 15% higher YoY from $1.39 per pound in 2023.

Blueberry harvest season in Peru begins in fiscal Q4. Lower average sales prices will offset meaningful volume increases at owned farms. This will likely impact the YoY segment-adjusted EBITDA compared to the same time last year when supply constraints led to higher prices.

Mission Produce has three Buy ratings with a consensus price target of $14.33. AVO shares are up 28.74% YTD.

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