Market Overview

3 Top-Performing Consumer Goods Dividend Payers With The Most Upside Potential

Among the top-performing consumer goods stocks over the past six months that pay dividends, analysts believe that Allison Transmission (NYSE: ALSN), Foot Locker (NYSE: FL) and Pinnacle Foods (NYSE: PF) still have some room to run, despite rising more than 15 percent.

It is not unusual for stocks on a tear to overrun their mean price targets, which is an estimate of how far analysts on average expect the share price to climb. Other top-performing dividend payers in the sector of late, such as Molson Coors, Lorillard and Tata Motors, have done just that. And Keurig Green Mountain and others are at or near their mean price targets.

Allison Transmission

The Indianapolis-based company recently completed a secondary offering of 35 million shares, of which it repurchased of five million. It has a market cap of more than $5 billion and a dividend yield near 1.6 percent. The long-term earnings per share (EPS) growth forecast is almost 11 percent.

Related Link: Wells Fargo Sees 90% Probability Of Merger Between Reynolds, Lorillard

The short interest in the maker of transmissions for commercial and military vehicles was less than one percent of the float at the most recent settlement date. That was the greatest number of shares sold short so far this year. The days to cover is about one.

Seven of the 13 analysts who follow the stock and were surveyed by Thomson/First Call recommend buying shares, with three of them rating the stock at Strong Buy. Their mean price target is more than 11 percent higher than the current share price. That consensus price target would be a new multi-year high.

The share price is up more than 14 percent year-to-date, despite facing resistance around $31 for the past few months. It is above the 50-day moving average. The stock has outperformed the broader markets over the past six months, but it has underperformed competitor Caterpillar.

Foot Locker

This specialty retailer beat first-quarter earnings estimates but warned of a less exciting second quarter, despite the World Cup in Brazil. It sports a market capitalization of more than $7 billion and a dividend yield near 18 percent. Its return on equity is more than 18 percent and its operating margin is better than the industry average.

The number of shares sold short in this New York-based company was a little more than one percent of the total float at the end of May. That was the lowest level of short interest in at least a year. At the current average daily volume, it would take only about a day to close out all short positions.

Five of the 17 polled analysts rate the stock at Strong Buy, and another eight of them also recommend buying shares. A move to the mean price target would represent a gain of more than seven percent for the shares. That consensus target would be a new multiyear high.

The share price is up about 36 percent from the year-to-date low back in February, though it hit resistance around $50 this past week. It is still above the 50-day moving average. Over the past six months, the stock has outperformed not only competitor Finish Line but the broader markets as well.

Related Link: 2014: The Little Crisis That Couldn't

Pinnacle Foods

Hillshire Brands is expected to withdraw from its merger agreement with Pinnacle Foods after finding a better deal with Pilgrim's Pride. Pinnacle Foods has a market cap of almost $4 billion and a dividend yield of about 2.5 percent. Its long-term EPS growth forecast is about 10 percent, and its price-to-earnings (P/E) ratio is less than the industry average.

The number of shares sold short plunged in the most recent period in the face of the intended merger with Hillshire, and they represented much less than one percent of the total number of U.S.-traded shares available. Short sellers no doubt will circle again if there is no alternative deal on the table soon.

The consensus analyst recommendation shifted to holding Pinnacle shares in the past month, from a previous buy recommendation in the previous two months. The mean price target currently suggests about four percent upside potential, but opinions could change with circumstances.

Shares are trading more than 22 percent higher than six months ago, but down about five percent from the 52-week high reached back in May. It remains above the 50-day moving average. The stock has outperformed the likes of Mondelez and General Mills over the past six months, as well as the S&P 500.

At the time of this writing, the author had no position in the mentioned equities.

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Posted-In: Allison Transmission Caterpillar finish line foot locker General Mills Hillshire Brands Keurig Green MountainTrading Ideas Best of Benzinga

 

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