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Stock Strategist

Ingredion Has the Recipe for Growth

It should benefit from health trends, demographics, and changing consumer preferences.

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 Ingredion (INGR) is benefiting from secular drivers of growth in ingredients, including health and wellness trends (removing salt, fat, sugar, and sodium and reducing calories and raw material costs); demographics (growing urban populations and more women working in developing markets); and more snacking and demand for processed and convenience foods in developed markets.

The investment case is built on specialty ingredients’ growing share (26% of sales) at the expense of low-value-added, or core, ingredients (74% of sales), which are barely growing and are much less profitable. We think the specialty segment has an operating margin of 30% and generates 47% of EBIT, while the core segment has an 11.5% margin and generates 53% of EBIT. By 2020, we expect specialty will generate 32% of sales and 54% of operating profit, accounting for three fourths of the increase in Ingredion’s operating profit over 2016-20. Because Ingredion’s acquisition strategy is focused on expanding the specialty segment, specialty’s share of sales and profit is likely to be higher than that achievable from organic growth alone.

Adam Kindreich, CFA does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.