US consumer staple companies likely faced another "tricky" quarter, with earnings growth seen impacted to a certain extent by inflation, UBS Securities said in a note e-mailed Thursday.
The brokerage expects second-quarter results from most of the group it covers to be "okay," analysts Peter Grom and Sona Fernandes said in a note to clients. While inflation is expected to have limited bottom-line growth "to a degree," the situation is more than reflected in Wall Street's estimates, according to the note.
"While we continue to believe fundamental visibility remains key to any investment case in staples, this has become increasingly priced in across the group making risk/reward far more difficult to assess on the surface," the analysts said. "This makes the setup into (second-quarter) earnings season tricky once again, but in some ways we think the playbook remains unchanged with fundamental visibility continuing to trump valuation."
Coca-Cola (KO), Keurig Dr Pepper (KDP), Monster Beverage (MNST), and Colgate-Palmolive (CL) are among the major names with favorable setups heading into the latest results, according to UBS.
Coca-Cola offers the "highest degree of fundamental visibility" among the group, Grom and Fernandes said. The beverages giant is poised for a strong print amid continued momentum in its top-line, according to the note.
For Keurig Dr Pepper, stronger growth from US refreshment beverages is likely to continue to drive upside despite "some concerns" around the company's coffee business, the analysts said. UBS expects solid revenue momentum for Colgate-Palmolive despite input cost uncertainty linked to the Middle East conflict.
While most Monster Beverage investors expect another strong quarterly print, the company will have to offer proof that it is capable of sustaining sales momentum, especially as competitive pressures mount and comparisons get tougher, according to the note.
Procter & Gamble (PG), Elf Beauty (ELF), and Celsius (CELH) are among the most debated stocks, according to UBS.
The brokerage sees Procter & Gamble's risk-reward profile as skewed to the upside despite an anticipated conservative fiscal 2027 outlook. Elf Beauty's core business volatility persists and "sentiment/stock performance will continue to hinge on the base business," Grom and Fernandes said.
For Celsius, the latest results itself are unlikely to "meaningfully alter the debate," which is expected to be focused on whether the company's core business can show signs of stabilization, the analysts wrote.
Molson Coors Beverage (TAP), Energizer (ENR), and Boston Beer (SAM) likely faced unfavorable setups due largely to deteriorating category trends, according to the note.
"Given scarcity of growth and (long-term) algorithms increasingly in question looking ahead, we think relative valuation is far less critical at this juncture and think companies that can outline credible avenues to deliver top- and bottom-line growth will continue to outperform," Grom and Fernandes said.
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