DJ Why Beverage Stocks Should Outperform Food Makers -- Barrons.com

By David Marino-Nachison

Buy drinks, not food.

That's the thinking at Guggenheim, which on Tuesday said beverage companies are better positioned to protect and grow their brands right now.

"We expect beverages to continue to outperform food, driven by better fundamentals reflected in stronger organic sales and earnings per share growth over the next few years," wrote analyst Laurent Grandet. "We attribute beverages' advantage to stronger brands that yield better pricing power, broader global presence [that] helps drive higher organic growth rates, and [a] more diversified customer base that mitigates risks from disrupted retailers."

Guggenheim has Buy ratings on four drink makers: Coca-Cola (KO), Boston Beer (SAM), Monster Beverage (MNST), and Anheuser-Busch InBev (BUD). Barron's recently took a long look at the outlook for Monster, and yesterday examined an analyst's upgrade for Anheuser-Busch.

Guggenheim also rates two food companies -- General Mills (GIS) and Mondelez International (MDLZ), both of which it started coverage of on Tuesday -- a Buy.

Broader market weakness have both food and beverage stocks trading at double-digit discounts to their projected earnings over the next 12 months, according to Guggenheim. Food stocks are at a deeper discount, but Grandet sees drink stocks posting wider profit margins -- and widening that lead slightly -- this year.

Drink companies also feel less pressure from the move toward private-label brands at some retailers, according to Grandet, in part because of the importance of convenience stores to their revenue. (An exception, he noted: bottled water.)

And he generally prefers nonalcoholic beverage companies to alcoholic ones, though his Buy rating on Boston Beer is a standout among sell-side analysts: His is the only one, according to FactSet, and his $306 price target is the highest out there.

Guggenheim has a Sell rating on J.M. Smucker (SJM), which it says is over-reliant on acquisitions to drive growth.

Email David Marino-Nachison at david.marino-nachison@barrons.com. Follow him at @marinonachison and follow Barron's Next at @barronsnext .

(END) Dow Jones Newswires

January 23, 2019 12:16 ET (17:16 GMT)

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