As we move through the current earnings season, we’ve continued to learn from consumer packaging companies, from ConAgra (CAG) to Lamb Weston (LW), and more recently Procter & Gamble (PG), valuation action taken in 2022 is fueling expectations of sequential margin improvement in the coming quarters.
Furthermore, some companies cite that their brands and products remain elastic and share that they are planning another price hike in the coming months.
At the same time, the December Retail Sales report showed that grocery sales in the December quarter were up 7.8% year-over-year. That combination suggests that consensus expectations for some consumer products companies, especially consumer food and beverages, may be a bit too conservative in the 12th and first half of 2023.
Looking at AAP’s portfolio, the two companies that come to mind are McCormick & Co. (MKC) and PepsiCo (PEP), both of which have come under pressure in recent weeks.
For McCormick, the consensus view is that its revenue grew 1.75% in the first half of the year, while for PepsiCo, the market expects revenue growth of 6.1% in the December quarter compared to the previous level. 7.8% year-on-year growth is found in the December Retail Sales report.
Despite top expectations that seem increasingly conservative, both MKC and PEP stocks have fallen in recent weeks. In those same weeks, improved inflation data combined with 2022 pricing action will become margin leverage in the coming quarters. That mismatch is prompting us to dig deeper into MKC and PEP stocks, a move that will further increase the portfolio’s exposure to both of these dividend-launching companies.
Once you receive this notice, we will purchase 145 shares of McCormick & Co. for almost 76.5 dollars. After the transaction, MKC will account for about 3.50% of the portfolio.
Once you receive this Notice, we will purchase 45 shares of PepsiCo at or near $168.20. After the transaction, PEP will account for about 3.9% of the portfolio.
(Please note that we are looking to make these trades at or close to the stock prices mentioned above. After the transaction is completed, the subscriber can see the strike price of the transaction here. Make sure to convert the chart to sort by Purchase Date.)
