Bernstein Analysts Upgrade Kraft Heinz and J.M. Smucker Stocks
Bernstein analysts have recently upgraded the stock of Kraft Heinz Co. (KHC) to outperform from market perform, as well as the stock of J.M. Smucker Co. (SJM) to market perform from underperform. The analysts explain that the selling of these two stocks, which had been driven by concerns surrounding the impact of a new class of weight-loss drugs, is now believed to be overdone.
Changing Narrative for U.S. Food Companies
In 2022, U.S. food companies experienced a boost due to a flight to safety and surprisingly solid price elasticities. However, the narrative took a turn in 2023 as elasticities worsened and the potential impact of GLP-1 drugs, including Wegovy and Monjauro, became apparent. These drugs have proven highly effective in helping obese patients lose weight, prompting speculation that food companies producing high-fat or high-salt snacks and processed foods would face significant challenges as consumers opt for lower-calorie options.
Decline in U.S. Food Stocks
As a result of these concerns, U.S. food stocks have seen a notable decline this year. The sector has experienced a 21% drop, in contrast to the 14% rise seen by the S&P 500. This relative underperformance of about 35% is the worst absolute and relative underperformance for the sector in over two decades, according to the analysts.
Mixed Performance Among Food Companies
Within the sector, companies such as Mondelez International Inc. (MDLZ) and Simply Good Foods Co. (SMPL) have fared relatively well, while Campbell Soup Co. (CPB) and Smucker have performed poorly.
Balanced Risk-Reward Outlook
Overall, the analysts believe that the risk-reward ratio for the sector has become more balanced. They anticipate that near-term performance is likely to be skewed to the upside. As of now, Kraft Heinz is up 1.6% premarket, while Smucker has yet to commence trading.
