DVDCF - Nestle Heineken and Reckitt headline Morgan Stanley's list of top European consumer staples stocks

2023-04-19 13:27:31 ET

Morgan Stanley issued a generally positive outlook for European consumer staples stocks on Wednesday ahead of the earnings season.

Analyst Pinor Ergun and team expect price increases to have continued to drive topline momentum in Q1, although the focus from investors is expected to now shift increasingly to price stickiness amid some soft volume trends.

The firm thinks Q1 will demonstrate that pricing peaked in Q4 of 2022 and will sequentially reduce over the coming quarters. Investors are likely to dig further into pricing power, market share dynamics, and margin recovery trajectories as the pricing backdrop changes.

By sector, Morgan Stanley expects HPC/Food to see a margin recovery starting in the second half, while beverages are anticipated to see a strong rebound in FY24 given hedging practices. Labor costs and marketing investments are also expected to increase.

Overall, Morgan Stanley still has a list of quality European consumer staples stocks that is sees trading at reasonable valuations with share price upside.

"Despite lower spot prices expected to improve the input cost outlook for Staples starting in 2H23, other rising costs means top line momentum will remain a critical component to valuations over FY23, in our view. As a result, we retain a preference for stocks with higher pricing power and earnings visibility at reasonable valuations."

Looking ahead, Morgan Stanley likes the 12-month setup on Overweight-rated Haleon plc ( HLN ), Reckitt Benckiser Group plc ( OTCPK:RBGPF ), Pernod Ricard SA ( OTCPK:PDRDF ), Heineken N.V ( OTCQX:HEINY ), Campari ( OTCPK:DVDCF ), Britvic plc ( OTCQX:BTVCF ), Nestlé S.A. ( OTCPK:NSRGY ), and British American Tobacco p.l.c. ( NYSE: BTI ). The firm also boosted price targets on Anheuser-Busch InBev ( BUD ), Carlsberg A/S ( OTCPK:CABGY ), Diageo ( DEO ), Danone S.A. ( OTCQX:DANOY ), Henkel AG ( OTCPK:HENKY ), and Unilever ( UL ).

See Seeking Alpha Quant Ratings across all consumer staples stocks.

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