STZ – Remains a Best Idea Long after reporting FQ1 results last week. Corona Extra’s small decline was disappointing but not unexpected. The overall beer category has volume headwinds, and the industry’s share swaps have lapped. Constellation Brands has performed well when it is investing in beer growth as it is now with its newest brewery in southern Mexico. The ROI on beer investments is the highest for the company, while wine and acquisitions have had a poor track record. Margin drivers this year provide management with a lever most companies do not have. Depletion growth may have missed some expectations, and the base effects are more difficult going forward, but Constellation Brands is well-positioned to continue to gain share and hit its growth targets.
BRBR – Raising on the Long list. BellRing Brands is on the growth side of GLP-1 medication. GLP-1 patients increasingly recognize the risk of losing muscle mass from the weight loss medication. Increasing protein consumption despite reduced appetites is driving demand for protein RTDs. BellRing Brands' increased capacity has enabled the company to target the GLP-1 patient population with advertising.
CAG – Raising on the Short list ahead of FQ4 results this week. Conagra is expected to report a small upside to the consensus EPS estimate of $.57. Management needs to demonstrate that the investments in SG&A will drive improved volume trends. The organic growth comparisons in FQ4 are easier on a one-year or stacked basis in addition to the 50bps of Americold headwinds. However, showing sequential improvement while holding onto higher gross margins is the challenge. Pension expense, JV earnings, and interest expense are all headwinds this year. The Ardent Mills JV contribution is guided to have its largest YOY headwind in FQ4 (~$24M). Looking out to F2025 it will be difficult to get investors excited for minimal organic growth and margin gains, and an increase in capex.
KHC – Raising on the Short list. Kraft Heinz’s diversification in food also means it is exposed to numerous promotional actions by a myriad of competitors. Investors will be focusing more on volume growth trends in the 2H. The valuation is undemanding, but the visibility in volume growth is low, with price increases still planned for 2024.
KLG – Raising on the Short list. Dividend yield is one of the worst style factors in Quad 3. Organic growth is more highly sought in a stagflation environment. Visibility in margin expansion has to be tempered by a lack of visibility in organic volume growth and a lower level of FCF.
SMPL – Raising to the top of the Short Bias list. Atkins is on the losing side of GLP-1 medications. Will Simply Good Foods be able to acquire growth to cease the questions around Atkins? Are investors concerned about the capacity expansions headed for Owyn? Our questions have us prioritizing the research.
KR – Lowering on the Short list. The FTC is on a losing streak, because it is bringing cases it does not mind losing. The Kroger-Albertsons case is a case we think it will lose as well. The court date is approaching, and the share should reflect the better odds.
Our position monitor is rank ordered:
