In the last week, Hormel Foods (HRL) has been the poster child of the worst-performing packaged food stock. Stronger brands like Pepsi (PEP) and Coke (KO) are well off their trading ranges. Why did these stocks fall sharply?
Novo Nordisk (NVO) has a magic pill, an injectable drug, to treat diabetes. This drug also has the side effect of weight loss. Markets are spinning a fantasy story that the obesity drug will hurt restaurant food, beverages, confectionery, and fast food demand.
Inflation is the likely culprit to the weaker demand ahead. Fortunately, Pepsi posted results that undermine the bearish opinion. The firm posted organic sales rising by 8.8% Y/Y in Q3. Europe and the Africa/Middle East and South Asia regions were the strongest. Pepsi raised prices, driving its profit growth.
For FY 2023, Pepsi expects organic revenue to increase by 10%. In FY 2024, organic revenue and EPS growth will be toward the upper end of the company’s long-term targets.
Savvy investors should take advantage of the weak share price in these established brands. Restaurant stocks like Domino's Pizza (DPZ), Restaurant Brands (QSR), and McDonald’s (MCD) will soon trade at multi-year low valuations. They become increasingly attractive as the stock price falls.
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