Analysts have raised their outlooks for a recession as the Russian invasion of Ukraine, and related events are threatening to create upward pressure on inflation and weigh on economic activity. The probability of a recession in the U.S. was raised to 33% in the next 12 months, up ten percentage points from the last month’s survey. On the other hand, the Federal Reserve on Wednesday approved its first interest rate increase of 25 basis points to combat the rising inflation. However, officials also raised their inflation outlook.
In times of uncertainty and heightened market volatility, consumer defensive stocks tend to be investors’ favorite to hedge their portfolios. Consumer staples stocks could be good bets considering the near-inelastic demand for their companies’ products. So, during economic downturns, consumers usually tend to focus their spending more on these goods.
Given this backdrop, the dip in the consumer defensive stocks Diageo plc (DEO), Mondelez International, Inc. (MDLZ), and Tyson Foods, Inc. (TSN) provides the right opportunity to invest in them.
Diageo plc (DEO)
DEO is an alcoholic beverage company based in the United Kingdom that operates in various categories, including spirits and beer. Its geographic segments include North America; Europe and Turkey; Africa; Latin America and Caribbean; and the Asia Pacific.
On March 9, 2022, DEO announced its plans to build its first carbon-neutral distillery in Canada. This is aligned with its target to reach net-zero carbon emissions by 2030.
Also, this month, DEO opened its new 2,25,000 square-foot canning facility in Illinois with two high-speed can lines designed to accelerate its existing ready-to-drink production line. “The new canning facility will enhance Diageo’s operations, strengthening our offering and accelerating our strategy in the ready-to-drink category,” said Keara Funck, Convenience, Vice President, Diageo North America.
For the six months ended December 31, 2021, DEO’s net sales increased 15.8% year-over-year to £7.96 billion ($10.41 billion), while organic net sales grew 20%, driven by strong double-digit growth across all regions, supported by effective marketing and excellent commercial execution. Its operating profit rose 22.5% from the year-ago value to £2.74 billion ($3.58 billion), while its profit for the period stood at £2.09 billion ($2.73 billion), reflecting a 25.7% increase year-over-year. Moreover, its earnings per share stood at 84 pence, up 24.6% year-over-year in the same period.
Analysts expect DEO’s revenue to come in at $19.17 billion in the fiscal year ending June 2022, indicating an increase of 7.8% year-over-year. Its EPS is expected to grow 16.8% year-over-year to $7.59 in the same period.
Over the past year, the stock has gained 15.3% to close yesterday’s trading session at $195.34. It has declined 1.6% over the past month.
DEO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our POWR Ratings system. The POWR ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
DEO is also rated B in Stability, Sentiment, and Quality. Of 37 stocks in the B-rated Beverages industry, DEO is ranked #15.
To see additional POWR Ratings for Momentum, Value, and Growth for DEO, click here.
Mondelez International, Inc. (MDLZ)
MDLZ is involved in the manufacturing, marketing, and selling of a range of snack food and beverage products. Its segments include Latin America; AMEA; Europe; and North America.
Earlier this month, MDLZ announced the completion of a $23 million investment to expand its popular OREO biscuit production line in Indonesia. The company expects this expansion to significantly increase OREO production capacity to meet growing local and export demand in 35 countries across Southeast Asia and the broader Asia Pacific and Middle East regions.
In January, MDLZ completed the acquisition of Chipita Global S.A., a high-growth leader in the croissants and baked snacks category. This acquisition should help accelerate growth and enhance its networking and distribution capabilities, considering Chipita’s significant scale across geographies.
MDLZ’s net revenues increased 4.9% year-over-year to $7.66 billion in the fiscal fourth quarter ended December 31, 2021. Its operating income improved 4.8% year-over-year to $1.20 billion over the period, while its earnings before income taxes increased 21.5% from its year-ago value to $1.14 billion.
The company’s revenue for the fiscal year ending December 2022 is expected to come in at $29.84 billion, indicating a 3.9% year-over-year growth. Also, its EPS is expected to increase 5.6% year-over-year to $3.03 for the same period. It has a notable earnings surprise history, as it topped Street EPS estimates in three of the trailing four quarters.
The stock gained 7.5% over the past year but has slumped 6.1% year-to-date to close the last trading session at $62.27.
MDLZ’s POWR Ratings reflect this promising outlook. The company has an overall rating of B, translating to Buy in our proprietary rating system.
MDLZ also has a B grade in Stability, Sentiment, and Quality. It is ranked #21 of 84 stocks in the B-rated Food Makers industry.
Beyond what is stated above, we’ve also rated MDLZ for Growth, Value, and Momentum. Get all the MDLZ ratings here.
Tyson Foods, Inc. (TSN)
TSN produces a range of frozen and refrigerated food products worldwide. Its business segments include Beef; Pork; Chicken; and Prepared Foods. The company markets and sells its products to retailers, wholesalers, distributors, military commissaries, industrial food processing companies, and chain restaurants.
On February 2, 2022, TSN unveiled its new $355 million bacon production facility in Bowling Green, Kentucky. Once operational in 2023, this 4,00,000 square foot facility is expected to provide employment to 450 people and help meet the growing demand for its iconic brands Wright and Jimmy Dean. This development could help the company expand its market reach and strengthen its footing in Kentucky.
TSN’s sales increased 23.6% year-over-year to $12.93 billion, while its adjusted operating income increased 39.7% from the prior-year quarter to $1.43 billion in the fiscal first quarter ended January 1, 2022. Net income attributable to TSN came in at $1.12 billion, reflecting an increase of 140% year-over-year, while the adjusted net income per share stood at $2.87, up 47.9% year-over-year.
Street expects TSN’s revenue for the current quarter ending March 2022 to come in at $12.80 billion, indicating an increase of 13.3% year-over-year. Its consensus EPS estimate is expected to grow 36.1% year-over-year to $1.82 in the same period. TSN also beat the consensus EPS estimates in each of the trailing four quarters, which is impressive.
TSN’s shares have gained 16% over the past year to close the last trading session at $88.60. However, the stock has slumped 5% over the past month.
It is no surprise that the company has an overall rating of A, equating to Strong Buy in our POWR Ratings system.
It also has an A grade in Value and a B in Growth and Sentiment. It is ranked #8 in the Food Makers industry.
In addition to the POWR Rating grades I’ve just highlighted, you can see the TSN’s Momentum, Stability, and Quality ratings here.
DEO shares were trading at $196.55 per share on Friday morning, up $1.21 (+0.62%). Year-to-date, DEO has declined -10.01%, versus a -7.30% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
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