SMPL - Deutsche Bank picks winners and losers in the consumer staples sector

2023-03-20 09:20:40 ET

Deutsche Bank selected Procter & Gamble ( NYSE: PG ) and Mondelez ( MDLZ ) among top picks in a sweeping note on consumer staples stocks on Monday.

Equity analysts Steve Powers and Christopher Barnes said that there “value-oriented opportunity” for Kraft Heinz ( KHC ), Coty Inc. ( COTY ), Nomad Foods ( NOMD ), Dole ( DOLE ), and Local Bounti Corp. ( LOCL ). They indicated that valuations are attractive at present as the upside is “underappreciated” in 2023.

Procter & Gamble ( PG ), Colgate Palmolive ( CL ), Mondelez International ( MDLZ ), and Church & Dwight ( CHD ) were selected as top picks in the core consumer packaged goods category. Meanwhile Estee Lauder ( EL ), Monster Beverage ( MNST ), and Simply Good Foods ( SMPL ) were selected as attractive growth names.

“We also see solid near-term fundamental momentum and sound defensive properties at Coca Cola ( KO ) and PepsiCo ( PEP ) as well, but remain Hold-rated on valuation and current FCF,” Powers and Barnes added. “Among more growth-oriented names in our coverage, we continue to favor Buy-rated EL, MNST, and SMPL—acknowledging greater downside risks if macro demand pressures manifest, but also seeing current base case conditions for top-line momentum and/or margin recovery as compelling at current levels.”

Elsewhere, Kimberly Clark Corporation ( KMB ) and Conagra Brands ( CAG ) have some risks, but should continue to perform, according to Powers and Barnes.

“We still continue to view both KMB and CAG along with recently upgraded [Flower Foods] ( FLO ) to be at higher risk of consumer trade-down, share loss, and/or related pricing/promotional investments to stem volume declines,” they wrote. “We also believe such fundamental challenges above the gross margin line (should they manifest) could end up being less severely penalized in a defensive market that we see as increasingly likely to prioritize relative bottom-line stability in the face of rising economic headwinds.”

They explained that while CPG fundamentals may remain challenged, downside risk is muted in the current environment. As such, there are prominent opportunities available for investors. Both Kimberly Clark ( KMB ) and Conagra Brands ( CAG ) were therefore upgraded to Hold from prior Sell ratings.

However, the team was more pessimistic on the trajectory for major brewers. As such, both Boston Beer Company ( SAM ) and Molson-Coors ( TAP ) were kept at Sell ratings.

Read more on Goldman’s picks in the sector .

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