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During the stock market's recent bond-induced swoon, another force has pressured companies across multiple industries — weight loss drugs.
A slew of consumer names ranging from PepsiCo (PEP) to Coca-Cola (KO) to Conagra Brands (CAG) have seen shares slump as investors try to work out the potential long-term impacts of a population medically controlling its food intake.
Dialysis giant DaVita (DVA) saw shares slide more than 16% on Oct. 11 after Ozempic-maker Novo Nordisk (NVO) said the drug showed signs of delaying kidney disease in some patients. And some Wall Street analysts have speculated more widespread use of the class of drugs known as GLP-1s could help airlines cut fuel costs in the future.
Coke CFO John Murphy told investors on Tuesday the company will "continue to monitor" the development of these drugs. PepsiCo CEO Ramon Laguarta said any impact to the company's business so far has been "negligible." And DaVita issued a press release that said, in part, "We believe there may be limited application of the [Novo Nordisk] FLOW study findings to the overall [chronic kidney disease] patient population."
The wide range of impacts weight loss drugs could have on a wide range of industries has made this story a challenge for investors to price.
In a recent note to clients, analysts at Goldman Sachs suggested weight loss drugs could be a $100 billion opportunity in the US by the end of the decade. Today, the market is about $6 billion.
Moreover, the set of companies that appear most obviously at risk should tens of millions of Americans cut their caloric intake are not fast-growing innovators with an investor base that prices in a wide range of outcomes.
Rather, the companies most at risk are businesses like Coke and Pepsi, consumer staples stocks that are considered by investors to be basically what the name implies — stable, reliable growers that often pay a dividend, buy back stock, and steadily raise prices due to a dominant market position and powerful brand.
But this modeled stability makes these stocks even more susceptible to changes in the competitive environment than shares in a riskier company that might not even be around in five years.
An investor might model growth for both a market-leading soft drink giant and a recently founded AI startup at 10% per year from 2027 through 2032. But the higher the degree of confidence the company will actually exist at that point in the future — a near certainty for our soft drink leader and maybe a 50/50 proposition for the AI startup — makes one model a dart throw and the other a reasonable assessment about what growth will actually be over this period.
Now, a comment from Walmart (WMT) exec John Furner earlier this month suggested behaviors from consumers taking this class of drugs may already be changing.
But tomorrow always matters more than today for investors. And particularly if a company's existence tomorrow isn't really in doubt.
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