Inflation has surged to record levels. And in a high inflationary environment, consumer defensive stocks do well due to the almost inelastic demand for their products. So, since inflation is expected to remain elevated due to high energy prices and supply chain issues, we think it could be wise to bet on the stocks of consumer defensive companies Keurig Dr Pepper (KDP), Hershey Company (HSY), Coca-Cola Company (KO), and Constellation Brands (STZ). Read on.
The major market indexes have faced tremendous selling pressure over the past few weeks on investor concerns over surging inflation and the Fed’s aggressive interest rate increases to tame it. Yesterday, the S&P 500 marked its worst day since June 2020, declining 4% to close the trading session at 3,923.68. The Nasdaq Composite and the Dow Jones Industrial Average also declined 4.7% and 3.6%, respectively, to settle at 11,418.15 and 31,490.07.
The consumer price index rose 8.3% in April, which was higher than the 8.1% estimate. This is close to the highest level in more than 40 years. Consumers generally reduce discretionary spending in a high inflationary environment. However, the consumer defensive sector typically sees stable demand for its products. Consumer defensive stocks are often good bets, especially during inflation, due to the near-inelastic demand for these companies’ products.
Since inflation is expected to remain high due to rising energy prices and supply disruptions, we think it could be wise to bet on consumer defensive stocks Keurig Dr Pepper Inc. (KDP), The Hershey CompanyHSY), The Coca-Cola CompanyKO), and Constellation Brands, Inc. (STZ).
Keurig Dr Pepper Inc. (KDP)
KDP in Plano, Tex., is a beverage company that has a diverse portfolio of flavored (non-cola) carbonated soft drinks (CSDs), non-carbonated beverages (NCBs), including water, ready-to-drink tea and coffee, juice, juice drinks, mixers, and specialty coffee, and is a producer of single-serve brewing systems. The company’s segments include Coffee Systems; Packaged Beverages; Beverages Concentrates; and Latin America Beverages.
On April 28, 2022, KDP announced that it was entering a long-term, exclusive sales arrangement with Tractor Beverage Company. KDP was the lead investor in Tractor’s growth funding to expand its infrastructure and marketing. KDP’s Cold Beverages President Derek Hopkins said, “We have built strong brands and relationships in the restaurant space, and this strategic partnership with Tractor Beverage complements our beverage portfolio and supports our commitment to deliver innovation and develop growth strategies with our customers.”
KDP’s net sales increased 6% year-over-year to $3.07 billion for the first quarter, ended March 31, 2022. The company’s adjusted net income increased 0.8% year-over-year to $474 million. Also, its operating income increased 51% year-over-year to $966 million.
Analysts expect KDP’s EPS for the quarter ended Sept. 30, 2022, to increase 9.1% and 12.3%, respectively, year-over-year to $0.48 and $3.55 billion. Over the past nine months, the stock has gained 0.4% in price to close the last trading session at $34.52.
KDP’s POWR Ratings reflects its solid prospects. The company has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assesses stocks by 118 distinct factors, each with its own weighting.
The Hershey Company (HSY)
Hershey, Pa.-based HSY manufactures and sells confectionery products and pantry items. The company operates through three segments: North America Confectionery; North America Salty Snacks; and International. It offers chocolate and non-chocolate confectionery products; gum and mint refreshment products, including mints, chewing gums, and bubble gums; pantry items, baking ingredients, toppings, beverages, and sundae syrups; and snack items.
On Dec. 14, 2021, HSY announced that it had acquired Dot’s Pretzels, the owner of Dot’s Homestyle Pretzels, and Pretzels Inc., a manufacturer of pretzels in the United States, for $1.20 billion. The acquisition should accelerate HSY’s snacking powerhouse vision by adding the fastest-growing scale US pretzel brand to its portfolio.
For its fiscal first quarter, ended April 3, 2022, HSY’s non-GAAP gross profit increased 16.2% year-over-year to $1.22 billion. The company’s net sales increased 16.1% year-over-year to $2.66 billion. Also, its non-GAAP net income increased 30.6% year-over-year to $523.47 million.
For the quarter ending June 30, 2022, HSY’s EPS and revenue are expected to increase 14.3% and 20.6%, respectively, year-over-year to $1.68 and $2.22 billion. It surpassed the Street’s EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 20.2% in price to close the last trading session at $207.69.
HSY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which translates to a Buy in our proprietary rating system.
It has an A grade for Quality and a B grade for Growth and Sentiment. Within the B-rated Food Makers industry, it is ranked #18 of 87 stocks. To see the other ratings of HSY for Value, Momentum, and Stability, click here.
The Coca-Cola Company (KO)
Famous beverage company KO in Atlanta, Ga., manufactures, markets, and sells various non-alcoholic beverages worldwide. It provides sparkling soft drinks, water, enhanced water, juice, dairy, and syrups. In addition, it sells products under Coca-Cola, Diet Coke/Coca-Cola Light, Coca-Cola Zero Sugar, and Fanta brands.
KO’s net operating revenues increased 16% year-over-year to $10.49 billion for the first quarter, ended April 1, 2022. The company’s adjusted increased net income attributable 16.5% year-over-year to $2.79 billion. Also, its adjusted EPS came in at $0.64, representing a 16.3% year-over-year increase.
Analysts expect KO’s EPS for its fiscal 2023 to increase 6.9% year-over-year to $2.64. Its revenue for the quarter ending June 30, 2022, is expected to increase 13.3% year-over-year to $10.56 billion. It surpassed consensus EPS estimates in each of the trailing four quarters. And over the past year, the stock has gained 12.6% in price to close the last trading session at $61.20.
KO’s POWR Ratings reflects this promising outlook. The stock has an overall B rating, which equates to a Buy in our proprietary rating system.
It has a B grade for Stability, Sentiment, and Quality. It is ranked #17 in the Beverages industry. Click here to see the other ratings of KO for Growth, Value, and Momentum.
Constellation Brands, Inc. (STZ)
STZ in Victor, NY, produces, imports, markets, and sells beer, wine, and spirits. It provides beer primarily under the Corona Extra, Corona Premier, Corona Familiar, Corona Light, Corona Refresca, Corona Hard Seltzer, Modelo Especial, Modelo Negra, Modelo Chelada, Pacifico, and Victoria brands. The company offers wine under the 7 Moons, Cook’s California Champagne, Cooper & Thief, Crafters Union, Kim Crawford, Meiomi, Mount Veeder, and other brands.
On March 30, 2022, STZ announced its first ready-to-drink and multi-serve boxed wine cocktails named Next Round Cocktails. STZ’s VP of Emerging Brands, Ann Stockman, said, “Next Round Cocktails represents Constellation Brands’ commitment to innovate for consumer-leading trends, such as creatively intersecting the growing consumer interest we see in the $696.50 million pre-mixed cocktails category and the $903.20 million premium boxed wine category.”
For its fiscal year ended Feb. 28, 2022, STZ’s net sales increased 2.3% year-over-year to $8.82 billion. The company’s gross profit increased 5.4% year over year to $4.70 billion. Also, its total current assets increased 9.3% year-over-year to $3.32 billion.
For the quarter ending Aug. 31, 2022, STZ’s EPS is expected to increase by 18.5% year-over-year to $2.82. Its revenue for fiscal 2024 is expected to increase 6.9% year-over-year to $10.03 billion. Over the past nine months, the stock has gained 10.5% in price to close the last trading session at $237.05.
STZ’s POWR Ratings reflect solid prospects. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It has an A grade for Growth and a B grade for Sentiment and Quality. It is ranked #18 in the Beverages industry. To see the other ratings of STZ for Value, Momentum, and Stability, click here.
KDP shares were unchanged in premarket trading Thursday. Year-to-date, KDP has declined -5.41%, versus a -18.09% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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