Beyond Meat patties on a shelf
Angela Weiss / AFP via Getty Images
Inflation is driving up prices at the grocery store, but rising wages and high savings rates have given consumers some ability to cope with those increased costs. Still, UBS argues that when it comes to packaged food, investors might do best to proceed with caution and be selective, at least near term.
Analyst Cody Ross initiated coverage of the packaged-food sector Wednesday, writing that he thinks consumers will be able to continue to spend enough to support roughly 4% growth for the industry near term, although inflation will remain a headwind.
“Against this backdrop, we prefer companies that exhibit greater pricing power, invest in innovation and brand equity to drive margin expansion, and have positive marginal catalysts ahead to improve their long term earnings power,” Ross writes.
Five companies fit that bill and earn Buy ratings: Sovos Brands (ticker: SOVO), Nomad Foods (NOMD), Kellogg (K), Mondelez International (MDLZ), and Simply Good Foods ( SMPL
). Ross has respective price targets of $16, $26, $73, $73, and $44 on the stocks.
He notes that these companies have done well in terms of cutting costs and delivering accelerating profit and revenue, while Simply Good has the added benefit of an extremely attractive portfolio of products benefitting from increased interest in health foods.
By contrast, he assigned Sell ratings to J.M. Smucker ( SJM
) and Campbell Soup ( CPB
) and respective price targets of $123 and $42, writing that these companies may struggle to keep pace with growth in their categories, potentially limiting their pricing power and weighing on their bottom lines.
For Beyond Meat (BYND)—a closely watched stock marked by big swings—Ross initiated coverage with a Neutral rating and $48 price target. He writes that while he’s optimistic about the rapidly expanding market for plant-based proteins, he expects the shares will remain volatile, as there are many moving parts to consider as faux-meat makers jockey for position.
Write to Teresa Rivas at [email protected]
