Inflation is showing signs of easing, with the Consumer Price Index (CPI) accelerating by 7.1% annually last month, down from 7.7% in October. The November CPI report marked the fifth-straight monthly decline and came in better than economists’ expectations of 7.3%. The monthly increases for food slowed to 0.5%, following a 0.6% increase in October.
The Federal Reserve last week raised its benchmark interest rate by 50 basis points, taking it to a targeted range between 4.25% and 4.5%, the highest level in 15 years. Although the increase broke a series of four straight 75 basis point hikes, the Fed officials indicated it would raise rates higher through the following year. The Fed’s resolve to keep hiking rates sparked recessionary fears lately.
According to a report by Coherent Market Insights, the global consumer products, and retail market is expected to grow at a CAGR of 7.5% to $29.11 trillion by 2028.
Since consumer staples, including food and beverages, enjoy an inelastic demand for their products, these companies make ideal investments during recessionary periods. Hence, adding fundamentally sound consumer stocks Ambev S.A. (ABEV), Kellogg Company (K), and Pilgrim’s Pride Corporation (PPC) could be wise to ensure significant returns in 2023.
Ambev S.A. (ABEV)
Headquartered in São Paulo, Brazil, ABEV manufactures and sells beer, carbonated soft drinks, non-alcoholic beverages, malt, and food products. It operates through four segments, Brazil; Central America and the Caribbean; Latin America South; and Canada.
For the fiscal 2022 third quarter ended September 30, 2022, ABEV’s net revenue increased 11.3% year-over-year to R$20.59 billion ($3.87 billion), while its gross profit grew 7.6% year-over-year to R$9.93 billion ($1.87 billion). The company’s normalized EBITDA increased 2.4% year-over-year to R$5.60 billion ($1.05 billion).
As of September 30, 2022, the company’s cash and cash equivalents stood at R$17.71 billion (3.33 billion), compared to R$16.63 billion ($3.12 billion) as of December 31, 2021, while total assets came in at R$142.06 billion ($26.74 billion) compared to R$138.60 billion ($26.08 billion) as of December 31, 2021.
ABEV pays a $0.09 per share dividend annually, which translates to a 3.38% yield on the current price. Its four-year average dividend yield is 3.44%.
ABEV’s trailing-12-month gross profit margin of 49.47% is 57.7% higher than the 31.37% industry average. Its trailing-12-month EBITDA margin of 27.08% is 133.5% higher than the 11.59% industry average. Likewise, the stock’s trailing-12-month net income of 16.57% is 298.7% higher than the industry average of 4.16%.
For the fiscal fourth quarter ending December 2022, analysts expect ABEV’s revenue to increase 5.4% year-over-year to $4.53 billion, while its revenue for the current fiscal year is expected to increase 7.9% year-over-year to $15.35 billion. Shares of ABEV have gained 12.7% over the past six months to close the last trading session at $2.76.
ABEV’s POWR Ratings reflect its strong outlook. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has an A grade for Quality. Within the Beverages industry, it ranked #12 of 34 stocks.
To see additional POWR Ratings for Growth, Value, Stability, Sentiment, and Momentum for ABEV, click here.
Kellogg Company (K)
K manufactures and sells snacks and convenience foods. It operates in four segments, North America; Europe; Latin America; and AMEA (Asia Middle East Africa). Its main offerings include crackers, crisps, savory snacks, cereal bars, noodles, etc. The company sells its products to retailers through direct sales personnel, brokers, and distributors.
On December 12, K’s Board of Directors adopted a $1.5 billion share repurchase authorization, under which the Company may buy back Kellogg’s shares at its discretion from January 1, 2023, to December 31, 2025.
The company can opportunistically return capital to shareholders using the buyback program while offsetting dilution from option exercises and other stock grants. The prior $1.5 billion authorization is set to expire on December 31, 2022.
For the fiscal 2022 third quarter ended October 1, 2022, K’s net sales increased 8.9% year-over-year to $3.94 billion, while its net income grew 2.3% year-over-year to $312 million. The company’s EPS stood at $0.90, a 1.1% increase from the year-ago value.
As of October 1, 2022, the company’s cash and cash equivalents stood at $373 million versus $286 million as of January 1, 2021. Likewise, its total current assets stood at $4.44 billion, compared to $3.39 billion as of January 1, 2021.
K has raised its dividends for 18 consecutive years. It pays a $2.36 per share dividend annually, which translates to a 3.31% yield on the current price. K’s dividend payments have grown at a CAGR of 2% over the past five years. Its four-year average dividend yield is 3.58%.
K’s trailing-12-month EBITDA margin of 16.39% is 41.4% higher than the 11.59% industry average. Likewise, the stock’s trailing-12-month net income of 10.01% is 140.7% higher than the industry average of 4.16%. Also, the stock’s trailing-12-month levered FCF margin of 6.38% is 152.7% higher than the 2.53% industry average.
The consensus EPS estimate of $0.85 for the fiscal 2022 fourth quarter ending December 2022 indicates a 2.5% year-over-year improvement. Likewise, the consensus revenue of $3.64 billion for the current quarter estimate indicates a rise of 6.4% from the previous year’s quarter.
Moreover, the company has an impressive earnings surprise history since it surpassed the consensus EPS estimates in all four trailing quarters. Shares of K have gained 5.4% over the past six months and 10.2% year-to-date to close the last trading session at $71.29.
K’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
The stock has a B grade for Quality. Within the Food Makers industry, it is ranked #29 of 83 stocks.
Click here to see additional ratings of K for Value, Growth, Stability, Momentum, and Sentiment.
Pilgrim’s Pride Corporation (PPC)
PPC produces and distributes fresh, frozen, and value-added chicken and pork products to retailers, wholesalers, and food service operators. It operates in the United States, the United Kingdom, Europe, and Mexico. Its market includes chain restaurants, food processors, broad-line wholesalers, and other organizations.
For the fiscal 2022 third quarter ended September 25, 2022, PPC’s net sales grew 16.8% from the previous year’s quarter to $4.47 billion, while its gross profit margin increased 33.7% year-over-year to $497.27 million. Its operating income rose 180.8% from the year-ago value to $339.20 million.
Furthermore, its net income came in at $259 million, a 325.7% increase from the year-ago value, while its EPS stood at $1.08, rising 332% year-over-year.
PPC’s trailing-12-month EBITDA margin of 14.49% is 25% higher than the 11.59% industry average. And its trailing-12-month ROCE, ROTC, and ROTA of 35.17%, 21.32%, and 10.33% compare to the industry averages of 10.59%, 6.17%, and 3.88%, respectively.
Analysts expect the company’s EPS and revenue for the current fiscal year ending December 2022 to increase 78.7% and 18.2% year-over-year to $4.07 and $17.46 billion, respectively. Furthermore, PPC has surpassed its consensus EPS in all four trailing quarters, which is impressive.
The stock has gained marginally intra-day to close the last trading session at $23.43.
PPC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
The stock has a B grade for Growth, Value, Stability, and Quality. Within the Food Makers industry, it is ranked #4 of 83 stocks.
Beyond what we stated above, we also have PPC’s ratings for Sentiment and Momentum. Get all PPC ratings here.
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REVISED: 2023 Stock Market Outlook (includes top 7 picks)
ABEV shares were trading at $2.85 per share on Monday afternoon, up $0.09 (+3.26%). Year-to-date, ABEV has gained 1.79%, versus a -18.76% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns. More...
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