In a market that has been subject to volatility recently, investors are looking for stocks that can ride the wave. Consumer staples are often seen as defensible stocks as people always need to buy food and beverages regardless of the economic climate. The consumer staples segment of the S&P 500 is up 18% year-to-date, and analysts are claiming that the industry might be heating up once again with three stocks receiving an upgrade from trusted analysts. While the rest of the Street takes a less bullish stance on these companies, each has an analyst in its corner. Here's why.
Dunkin’ Brands (DNKN)
Following the news of its upgrade on August 7, DNKN shares gained 2%. The stock is up 26% year-to-date, with Argus Research claiming more gains are on the way.
“We remain optimistic about Dunkin's strong franchise program, established brands, and opportunities to expand into new sales channels and geographic regions. We expect higher comps and accelerated store openings at Dunkin' Donuts U.S. to be driven by a range of factors, including drive-thru lines dedicated to mobile orders, brighter interior designs, espresso machines, digital order boards, and a tap system serving coffee, iced tea and cold brew,” analyst John Staszak said. He upgraded his rating from a Hold to a Buy and set a $92 price target, suggesting 14% upside potential.
DNKN has made substantial efforts to revamp its locations during the quarter. It added 46 new restaurants in the U.S., as well as an additional 109 international Dunkin’ and Baskin-Robbins locations. Dunkin’ also launched the multi-tender feature in its app that lets customers earn rewards points for their purchases. The feature has already seen promising results, with CEO and President David Hoffmann saying, “The effort is driving incremental active enrollments with no material impact to margin. On-the-go ordering saw average weekly sales increase by over 30% year-over-year and made up 4% of total transactions in Q2.”
The company reported on August 1 that it beat consensus estimates for second quarter earnings. Adjusted EPS reached $0.86 vs the Street’s $0.82 estimate. This is up from $0.77 in the prior-year quarter. Revenue was also up 2.5% from the year-ago quarter reaching $359 million.
The earnings beat follows DNKN's announcement on July 24 that it will start selling a breakfast sandwich with Beyond Meat’s (BYND) vegan sausage.
Wedbush analyst, Nick Setyan, agrees that these factors will drive sustainable long-term growth. On August 2, he reiterated his Buy rating and $92 price target, implying 14% upside.
The Street has taken a more cautious stance on DNKN. It has a ‘Hold’ analyst consensus and an average price target of $81, suggesting 0.3% downside.
Boston Beer Company, Inc. (SAM)
Despite slowing sales throughout the industry, Boston Beer has seen an impressive rally, with shares up 64% year-to-date. The Brewers Association reported that the beer industry growth rate reached its lowest level in a decade, with year-to-year growth dropping to 4% in 2018, a decline of 1% from 2017.
On July 25, the company reported better than expected second quarter earnings. Its revenue reached $318 million, up almost 17% from the prior-year quarter. EPS came in at $2.34 well ahead of the $1.83 consensus estimate. Management highlighted its Truly Hard Seltzer brand, along with Twisted Tea as the reasons for its sales growth even with its flagship Samuel Adams sales declining.
This follows the good news investors received on July 3 that SAM had finalized its $300 million merger with Dogfish Head Craft Brewery. The company believes Dogfish Head can contribute about 3% to 4% in annual shipments and depletions growth as well as between $50 and $60 million in net revenues at a gross margin of 50%.
Macquarie analyst, Caroline Levy, believes that the company’s portfolio has strong momentum. On August 7, she upgraded SAM to a Buy and raised her price target from $420 to $460, suggesting 17% upside. “SAM is the only public company that generates a high percentage of sales in hard seltzer (about 30%), which is growing over 100% and which we expect will continue to take share from mainstream beer due to its low-cal profile and adaptability to many flavors,” Levy said. Shares gained over 1% after the ratings boost.
Another top analyst, Laurent Grandet, agrees that there’s more upside to be had. On July 26, the Guggenheim analyst reiterated his Buy rating and raised the price target from $421 to $449, indicating 14% upside. “Management raised its EPS guidance to reflect the addition of Dogfish Head, which we continue to think is conservative. We remain positive on Boston Beer given the strong growth outlook thanks to Truly, Twisted Tea, Dogfish Head, and other new innovations,” he said. Grandet has an 82% success rate and gets an average return of 15% per rating.
Other analysts take less of a bullish approach. SAM has a ‘Hold’ analyst consensus and a $373 average price target, implying 5% downside.
Anheuser-Busch Inbev Sa (BUD)
The last consumer staples stock on our list pleasantly surprised investors last quarter.
On July 25, the company posted its first earnings beat in the last four quarters. Normalized EPS was up 15% from the prior-year quarter at $1.25, surpassing the $1.13 consensus estimate. Management points to improved market trends as the driving force behind this growth. Its sales also exceeded estimates for the third straight quarter despite the beer industry’s general slowing.
More good news followed on August 7 when BUD announced that it had acquired one of the fastest growing regional breweries in the U.S., Cleveland-based Platform Beer Company. This is the latest in a series of investments the company has made to expand its product offerings and grow its reach. BUD has invested over $130 million in the last three years to accomplish this goal.
All this has led some analysts to believe that BUD has the momentum to outperform its competitors in the space.
Merrill Lynch analyst, Fernando Ferreira, is one such analyst. On July 29, he upgraded the stock to a Buy and raised the price target from €87 to €107. “The cycle of downward earnings revisions is coming to an end. We believe the company will continue to outperform the consumer staples group,” he said. Shares gained about 1.4% after it was upgraded.
On July 25, Laurent Grandet also reiterated his Buy rating and raised the price target from $103 to $114, suggesting 16% upside. The analyst sees potential being derived from BUD’s encouraging volume trend in the long-term.
The Street is more optimistic about this consumer staple. It has a ‘Moderate Buy’ analyst consensus and a $102 average price target, implying 4% upside potential.