Locked-down consumers are stockpiling groceries in the Covid-19 pandemic, and that’s giving a welcome sales boost to food packagers like Campbell Soup (ticker: CPB) and Kraft Heinz (KHC). Checkout data from Nielsen Holdings (NLSN) is now out for the first weeks of pantry stocking and that’s prompting Wall Street to upgrade producers of soup, cereal, and peanut butter.
AllianceBernstein’s food bear Alexia Howard wrote Wednesday morning that she is “tactically” upgrading a handful of food stocks to Market Perform from Underperform. “[C]anned soup, pasta, peanut butter, cereal, and granola bars are among the categories that experienced the most significant incremental sales growth (about 10%-20%) due to coronavirus-related pantry loading,” she said.
Along with Campbell, she’s upgrading Conagra Brands (CAG), General Mills (GIS), Kellogg (K), and J.M. Smucker (SJM). Consumers aren’t eating out. Instead they’re piling their shelves with granola bars and other shelf-stable foods. Howard thinks the virus emergency compares to natural disasters like a hurricane.
In the week before Hurricane Irma hit Florida in 2017 , there was a local run on packaged-food products. That supplied a temporary 15% to 35% sales boost to companies that Bernstein was then rating at Underperform, including Conagra, Campbell, and Kellogg. Howard expects a similar short-term benefit now.
Wells Fargo analyst John Baumgartner sees similarly-encouraging evidence in the Nielsen retail data for the sagging sales of Campbell and Kraft. He expects food stocks to outperform the S&P 500 index in the Covid-19 downturn. Categories enjoying the biggest sales turnaround in the week ended March 7 included chocolate, bottled water, cereal and soup.
In a note Tuesday, Baumgartner reiterated his Overweight ratings for snack seller Mondelez International (MDLZ), General Mills, Post Holdings (POST), Simply Good Foods (SMPL), and for international companies Danone (BN. France) and Nomad Foods (NOMD).
Today’s sales bump may end up robbing demand from some of these companies in the weeks ahead, cautions the Wells Fargo analyst. Most at risk of such a pull-forward, he thinks, are Campbell and Smucker.
Concern that the pantry raid won’t last is also the reason why Bernstein calls its food upgrade a tactical call. If food buying slows in coming weeks or a recession lasts for a year, there could be another tactical opportunity to revert to a sell rating on food stocks, says Bernstein’s Howard.
“[A]s longer-term structural pressures resume,” Howard noted, “the sector tends to underperform the market on a one-year forward basis once the economy is well into recession.”