Stocks such as Hershey, Coke, ADM, and Bunge are best positioned for investors given the recent spikes in energy, grains, and vegetable oil costs said analysts at Credit Suisse in a note.
Stocks such as Hershey, Coke, ADM, and Bunge are best positioned for an up-move given the recent spikes in energy, grains, and vegetable oil costs said analysts at Credit Suisse in a note. The brokerage firm has changed estimates for consumer stocks in its coverage, expecting a more profound and immediate impact on their results. While some US consumer staple stocks could see a negative impact of the rise in commodity prices there are also opportunities in the market. Commodity prices have skyrocketed across the globe owing to Russia’s invasion of Ukraine and resulting sanctions on the former. Crude oil prices hit a multi-year high earlier this month. Inflation in the US is near a 40-year high.
How consumer staples could move
In the packaged foods business, Credit Suisse believes small-cap stocks TreeHouse Foods, Utz Brands, and B&G Foods have the highest degree of earnings risk if these inflationary spikes persist. “Based on our assumption of 70% hedging for the full year (which is largely in-line with industry practices), we estimate EPS risk of 22%, 17% and 7% respectively,” they said. Analysts have a positive view on Hershey, which has limited exposure to grains and favourable positions on cocoa.
Diving into the Household & Personal Care space, analysts noted that Clorox has the highest degree of earnings risk given its higher exposure to energy (including chemicals) and resin relative to peers. On the other hand, in the beverages business, Frito-Lay’s exposure to corn and vegetable oil is seen to be putting PepsiCo’s earnings at risk. “We note, however, PepsiCo has several levers to manage this pressure including its substantial scale, long-term contracts which serve as hedges, and its ability to utilize substitute blends for vegetable oil,” Credit Suisse said.
Among Agribusiness processors, Bunge and ADM are seen as major beneficiaries of higher oilseed byproduct values and dislocations in global grain merchandising. Credit Suisse has upped Bunge’s target price to $120 and ADM to $85 per share. The brokerage firm added that Bunge and ADM had been gradually locking in prices with South American farmers for the past several months at much lower prices leading up to South America’s spring harvest, which shall benefit the firm now.
Bunge Limited’s target price raised
The agribusiness processing firm has seen its stock soar more than 17% so far in 2022 while the NYSE is down 2.8%. Analysts at Credit Suisse believe Bunge’s global footprint gives it opportunities to capitalize on near-term dislocation in the markets. “Prices (oilseed) are now up another 20% since mid-February. By our math, this helped boost Bunge’s soy crush margins by $0.50 per bushel. Mathematically, a sustainable increase of this degree would represent an enormous operating profit increase given that Bunge crushes about 40M MTs per year,” they added.
Currently, the stock is trading at $110 per share. The target price of $120 apiece, implies a 9% upside potential for the scrip. In a bull case scenario, the stock is expected to touch $125 per share. “The biggest risk to our TP is volatility in the commodity and renewable fuel markets,” analysts said.