Goldman’s picks as resilient consumer starts to show some cracks
While companies are painting a picture of a struggling consumer, Goldman Sachs has ideas for which names can still perform. Corporations ranging from 3M to McDonald’s have admitted to seeing strains among their customer bases in recent weeks as inflationary pressures hurt everyday Americans. That marks a turn from the story of the surprisingly resilient consumer that has shocked experts since the Federal Reserve began hiking interest rates. While this change in sentiment can be bad news for many consumer-facing brands, analyst Bonnie Herzog has some names that should be able to weather the storm. Herzog said companies specifically focused on lower-income consumers such as Pepsi , Molson Coors , Monster Beverage , Clorox and Kimberly-Clark could see trouble. On the other hand, she pointed to Coca-Cola , Colgate-Palmolive , Constellation Brands and Walmart as stocks able to avoid taking a hit due to qualities such as low-price leadership and mixed revenue streams. “We see companies levered to the low income consumer and private label competition at greatest risk,” she wrote to clients. At the least risk are “those most insulated from these factors due to low-price leadership, healthy/diversified revenue streams including strong revenue growth mgmt capabilities & durable margin trajectories.” While Herzog noted that Coca-Cola has found consumers slightly more value seeking and getting products more at home, that is mainly a marginal trend. The soft drink maker beat analysts’ expectations on both lines for the first quarter when reporting late last month. Coca-Cola shares have gained less than 8% this year, underperforming the broader market. But Wall Street sees upside ahead, with the average analyst polled by LSEG holding a buy rating and price target implying upside of more than 6%. On the alcohol side, Herzog pointed to Constellation Brands as one that should not feel the consumer cracks. The alcohol stock has also underperformed the broader market this year, advancing 8%. Last month, the Modelo and Pacifico producer beat expectations on both lines for the fiscal fourth quarter and gave strong full-year earnings guidance. The average analyst surveyed by LSEG has a buy rating on the stock and foresees shares climbing another 15% over the next year. Beyond food makers, Colgate-Palmolive is another stock that Herzog sees sidestepping these troubles. Indeed, CEO Noel Wallace told analysts late last month that volume growth has largely returned as “inflation became more benign and as pricing started to stabilize.” The consumer products maker also beat analysts’ consensus forecasts for earnings per share in the base business and revenue. Shares have already jumped more than 19% this year and hit a 52-week high on Monday. Analysts see even more room to run, with an average rating of buy and target price reflecting another 2% to gain, per LSEG. Value-focused retailer Walmart was the last name Herzog holds confidence in. She pointed to a recent conversation with company representatives, during which they sounded “constructive” on the health of the consumer and saw a “steady” environment in the first quarter. Walmart, which reports earnings Thursday before the bell, has jumped nearly 16% so far this year. In addition to having a buy rating, the typical analyst surveyed by LSEG foresees the stock running up another 8.2%.
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