The last few years of inflation have changed how consumers shop and eat. Indeed, the best way for consumers to fight inflation is to simply put their wallets away or “trade down” to cheaper alternative products. This past year has seen the pricing power of food, beverage, and restaurant brands be put to the test. Some brands have demonstrated remarkable pricing power, while others haven’t been able to hike prices without hurting sales. Therefore, in this piece, we’ll use TipRanks’ Comparison Tool to check out three food and beverage stocks (KO, PZZA, and POST) with Strong Buy ratings from analysts.
Coca-Cola (KO)
Coca-Cola’s quarterly earnings are on tap for next week (July 23, 2024). Wells Fargo (WFC) analyst Chris Carey thinks the numbers will be better than most other consumer staples plays, thanks in part to “structural changes” that could provide meaningful (triple-digit) gross margin upside. Though shares have gone flat in the past two and a half years, I am inclined to stay bullish on KO stock as it feels the fizz ahead of coming earnings.
Indeed, Coca-Cola is one of those legendary Warren Buffett-approved brands that’s demonstrated top-notch pricing power amid an inflationary past few years. Though “trading down” from big brands to generics has been a common theme at the grocery store, Coke has managed to fend off the threat of its cheaper rivals.
Revenues beat expectations for five consecutive quarters (the latest saw $11.26 billion in sales, 2.3% ahead of estimates) as consumers continued reaching for Coke over generics. It’s not a mystery as to why.
Such sugary sodas provide a great deal of enjoyment for the price. For many, opting for generic cola is not worth a dollar or so of savings. Coke is synonymous with cola, and in the eyes of many, it’s the only option in the soda aisle. Perhaps Coke is one of the true consumer staples that can fare well in all environments, including inflationary and stagflationary ones.
At the time of writing, shares of KO are just 3% away from their all-time highs in early 2022. A solid earnings beat could make the consolidating soda firm break out. The stock trades at 22.8 times forward price-to-earnings (P/E), about 7% lower than its five-year average.
What’s the Price Target of KO Stock?
KO stock is a Strong Buy, according to analysts, with 14 Buys and two Holds assigned in the past three months. The average KO stock price target of $69.50 implies 6.6% upside potential.
Papa John’s International (PZZA)
Papa John’s International is a pizza chain that really lost its way in recent years, shedding more than 66% in the last two and half years. The latest quarter had a rough showing, but CEO Rob Lynch has a turnaround plan named “Back to Better 2.0” in store for the firm as it hopes to reverse a brutal trajectory. Such a plan, which hopes to drive comparable sales, entails greater collaboration between corporate and franchisees. At this juncture, it seems that few investors are buying into the plan. Still, I’m inclined to stay bullish with shares at historically cheap multiples.
It’s one thing to have a strategic turnaround plan, but it’s another to actually execute it and hit financial targets. Looking ahead, the firm seeks to increase comparable sales by 2-4%. That’s a realistic target that management may be able to hit without putting in all too much effort should inflation back down and consumers start eating out again.
Either way, the company is more than willing to put in the effort. Whether it’s doubling down on menu innovation with intriguing new concepts like its Grilled Cheddar Pizza or revamping its marketing strategy, Papa John’s is exploring numerous options to claw back some share in the pizza market.
Papa John’s has always been great at experimenting with hot new products. Only time will tell if consumers come flocking back to Papa John’s to try the new item once they’re made aware of it. Either way, the stock smells like a bargain at 19.5 times trailing P/E, the lowest it’s been in the past year.
What’s the Price Target of PZZA Stock?
PZZA stock is a Strong Buy, according to analysts, with six Buys and two Holds assigned in the past three months. The average PZZA stock price target of $68.75 implies 55.2% upside potential.
Post Holdings (POST)
Post Holdings stock had been flatlining since hitting a peak back in February. More recently, though, the cereal and pet food firm broke out to new highs of around $110 as the stock market rally broadened out beyond big tech. With a strong operating track record and a hunger for strategic M&A, I’m staying bullish on POST, especially as investors start appreciating boring companies lacking in AI exposure.
For Fiscal Year 2024, Post is poised to invest $420-445 million in scaling up its facilities and also enhancing operating efficiencies. Indeed, these are pretty hefty capital expenditures for a consumer staples play. However, given Post’s track record, I do not doubt that such investments will lead to sustained margin improvements. Arguably, Post is one of the best-run operators in the cereals and consumer-packaged goods scene.
At 20.7 times trailing P/E, POST stock is trading in line with the packaged foods industry average of 19.3 times. The slight premium, I believe, is more than warranted, given that the company is an efficient operator with a knack for unlocking synergies via strategic M&A.
What Is the Price Target of POST Stock?
POST stock is a Strong Buy, according to analysts, with six Buys and two Holds assigned in the past three months. The average POST stock price target of $119.00 implies 8.2% upside potential.
The Takeaway
The following food and beverage stocks are relatively quiet consumer staple plays with enough catalysts to finish the year strong as market strength broadens. Whether we’re talking about Coke’s unmatched pricing power, Papa John’s turnaround plans, or Post’s operating excellence, each name is a well-deserved Strong Buy in the eyes of analysts.
Of the trio, Wall Street sees PZZA stock as having the most room to gain (55%) in the year ahead. As the cheapest and most unloved of the three, investors who are fans of the brand may wish to grab a slice while it’s down and out.
