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Food favorites from Wells Fargo include Kraft and General Mills

  • Wells Fargo is out with an update on how it views the food sector heading into earnings season. Six stocks tipped by the firm as having compelling risk-reward profiles into the earnings report and for the year ahead are Mondelez International (MDLZ -2.5%), Nomad Foods (NOMD -0.1%), Kraft Heinz (KHC -2.5%), General Mills (GIS -0.9%), TreeHouse Food (THS -2.6%) and BellRing Brands (BRBR -2.5%).
  • On Mondelez: "We think the Street under-appreciates peer-leading growth drivers including our estimated $600MM+ in cost savings through FY23 and innovation/distribution/market share gains positioning the model for 4%+ normalized annual organic revenue (vs. Street’s +3.5%). We expect positive revisions vs. Street and valuation multiple expansion through 2022."
  • On Nomad: "We model above-consensus EBITDA growth through FY22 driven by LEAN manufacturing, productivity savings, and M&A synergies; accretion from new plant-based meat alternatives (min. +100bps to annual revenue), and potentially accretive bolt-on M&A, reinforce our thesis."
  • On Kraft: "9/15/20’s Investor Day confirmed our contrarian thesis that cost savings should exceed reinvestment through FY24E. We see a compelling risk/reward underpinned by an upside bias to Street forecasts through FY22 on stronger revenue growth, operating leverage, and net savings; faster debt deleveraging and a 5% dividend yield reinforce our thesis."
  • On General Mills: "Hard CY21 comps limit investors' marginal buying interest but we see the potential for positive revisions to Street ests. during H1 CY21 (more moderate sales declines) and think the Street continues to underappreciate legacy operating leverage and the portfolio mix potential at Blue Buffalo. Net, we see upside vs. the Street's FY22E EPS (+2% vs. our +7%)."
  • On TreeHouse: "We see risks through FY21 as skewed to the upside amid muted Street expectations and improving execution. Significant operating leverage suggests outsized EBITDAs benefit from stronger revenue growth which we think will be supported by new business wins (helped by COVID), innovation, and potential macro benefits from recession-induced trade-down."
  • On BellRing Brands: "We like the 12-mo. risk/reward as we see company-specific factors providing insulation against COVID-driven choppiness in category demand. We maintain that COIVD is likely to reinforce secular demand trends for low-sugar/healthy nutrition products and BRBR is benefiting from low household penetration/distribution growth with robust velocities. "
  • The firm has Overweight ratings on all six food stocks.
  • Compare the food stocks side by side.

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Related Stocks

SymbolLast Price% Chg
MDLZ--
Mondelez International, Inc.
NOMD--
Nomad Foods Limited
KHC--
The Kraft Heinz Company
GIS--
General Mills, Inc.
THS--
TreeHouse Foods, Inc.