Morgan Stanley Names Its Favorite U.S. Foods Stocks, Previews Earnings

In a report published Tuesday, analysts at Morgan Stanley preview the fourth-quarter 2014 earnings for the U.S. food industry, and reassess their fundamental outlook, broadly increasing their price targets, but still expecting “continued shortfalls versus long-term targets in 2015 despite limited inflation and an improved US macro backdrop.”

While the firm remains cautious on the sector’s general outlook, it continues to see “selective opportunities during the coming year.” Its top picks include Keurig Green Mountain Inc GMCR, where the analysts see “sustainability of HH penetration gains in the Hot platform and the value of the pending Cold beverage launch as underappreciated;” Whitewave Foods Co WWAV, where they expect “continued ~8% organic sales growth and robust margin expansion, despite some evidence of slowing growth in PBB;” and Mondelez International MDLZ, “which offers the most compelling multi-year margin opportunity in the group.”

The report highlights, however, that each of these three stocks currently trades at ~12x 2016eEV/EBITDA, a ~10 percent premium to General Mills, Inc. GIS, Campbell Soup Company CPB and Kellogg Company K.

Earnings Estimates

Given the recent dollar strength, Morgan Stanley had to revise its estimates for the industry. However, given the sector’s U.S.-centric mix, this implies only “a modest F/X headwind for 2015,” the report assures.

The firm is now slightly below consensus across most of its coverage universe.

Expectations come as follows: