67 WALL STREET, New York - March 21, 2012 - The Wall Street Transcript has just published its Restaurants, Food and Drinks Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: Shift Toward Healthier Food Options - Consumer Spending Patterns Polarize - Emerging Market Expansion - Baby Boomers, Millennials and U.S. Hispanic Preferences
Companies include: Attitude Drinks (ATTD); BJ's (BJRI); Coca-Cola Enterprises (CCE); Pepsico's (PEP); Smucker's (SJM); and many more.
In the following brief excerpt from the Restaurant, Food And Drinks Report, expert analysts discuss the outlook for the sector and for investors.
Kaumil Gajrawala is a Managing Director and Co-Global Consumer Sector Strategist at UBS Investment Bank. He also covers the beverage stocks in the United States. Mr. Gajrawala has been covering equities on the sell side for over 14 years, beginning his career analyzing the satellite communications industry. After joining PaineWebber in 2000, he began covering U.S. beverages in 2002. Mr. Gajrawala is known in the investment community for his deep industry contact network, relationships with management and out-of-consensus thinking. He has been recognized as a top analyst by Institutional Investor's annual poll of top investors for four years, most recently placing third in 2011. He holds a B.S. in finance from Rutgers, The State University of New Jersey.
TWST: Please start with an overview of your coverage universe.
Mr. Gajrawala: My primary coverage is U.S. beverage stocks. That would be, big to small, The Coca-Cola Co (KO) and ABI (BUD) on the big side; in midcap we cover Molson Coors (TAP), Dr Pepper (DPS), Coca-Cola Enterprises (CCE), Brown-Forman (BF-B) and Monster (MNST). Our smallest company is Cott Corp. (COT). So pretty diverse across soft drinks and beer, wine and spirits, as well as big and small. Also, I'm the global coordinator across all regions for the beverage names - that effectively means I look at the industry from a strategist's standpoint, and while I'm not the primary coverage analyst for names like Diageo (CDO) or Grupo Modelo (GMODELOC.MX), I certainly stay on top of what is going on there.
TWST: What are the big trends impacting the industry now, for better or worse?
Mr. Gajrawala: I'd say there are a few things. While there's a lot of concern about a slowdown in emerging markets, I think the bigger question is, what is the cost of growth in emerging markets? With every consumer company out there going after that same incremental 1 billion consumers, it is becoming more and more expensive in many of those markets. Now, the relative price points for most products you sell are significantly below what they would be in developed markets, so your margins are already lower. Your margins are lower because you don't have the scale. And now the cost of doing business is going up, because so many people are going after the same consumer. So it's not necessarily just about emerging markets slowing or property prices in China - it's more, how much does it cost to grow, and do the incremental returns now not look nearly as favorable as perhaps they did three years ago?
TWST: What are your favorite names in the space today and why?
Mr. Gajrawala: Right now one of our top names is CCE, Coca-Cola Enterprises. They have 100% of their business in Western Europe. Because of that, I think investors are skeptical of their ability to grow the business, because everyone of course is worried about Europe and the macroeconomic situation there. And for CCE, they also of course are worried about currency. But if you look at it over the last 10 years, CCE's European business has very consistently delivered, even during recessionary periods. They have a very good handle on the business. Per capita consumption of Coca-Cola is quite low, and so they have the ability to continue to grow through these recessions and through tough times.
And most importantly, while currency is a risk, they are underlevered and are in the process of levering up and using that leverage to buy back shares, and that, I think, is very important because it helps get through what might impact the stock in the near term. Another name we like is Monster Beverage. Monster Energy Drinks are about 95% of their profitability. Energy drinks are not a new phenomenon. They are about 10 years old, but they continue to grow. They are growing very consistently, and as they do that, Monster has been the primary beneficiary. There are very few opportunities in consumer staples land to invest in a pure play company or brand that is involved in a growth category. Usually the big successes in staples would be something like a Coca-Cola Zero, which of course is part of Coca-Cola. With Monster, you get a pure play in the energy-drinks space.
The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
The Wall Street Transcript does not endorse the views of any interviewees nor does it make stock recommendations.
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