Food and Beverage Picks for 2013: Kellogg and PepsiCo
Bank of America/Merrill Lynch's "2013 Food and Beverage Year Ahead" report came out this past week. The analyst was looking for stocks of well-positioned companies with products that are protected from consumer weakness or those with strong franchises in developing markets.
This Battle Creek, Michigan-based maker of Rice Krispies, Pop-Tarts, Pringles and many other food products has a market cap of more than $20 billion and a dividend yield of about 3.1 percent. Its price-to-earnings (P/E) ratio is less than the industry average and the long-term earnings per share (EPS) growth forecast is more than six percent.
The return on equity is more than 50 percent and the operating margin is higher than the industry average. Shares sold short represent about two percent the float. That is the highest level of short interest in the past year.
Only three of the 22 analysts who follow the stock that were polled by Thomson/First Call recommend buying shares, but only one analyst rates shares at Underperform. And note that the analysts' mean price target, or where they expect the share price to go, is now less than the current share price.
Shares are trading near the 52-week high reached in mid-December. The share price is more than 14 percent higher than six months ago. In that time, the stock has outperformed competitor General Mills (NYSE: GIS) but narrowly underperformed ConAgra Foods (NYSE: CAG).
PepsiCo is a leading maker of snacks, beverages, dairy products and other foods. It is headquartered in Purchase, New York, and sports a market cap of more than $107 billion. Its dividend yield is near 3.1 percent. The P/E ratio is less than the industry average and the long-term EPS growth forecast is more than six percent.
The operating margin is higher than the industry average, but the return on equity is more than 26 percent. The short interest is less than one percent of the float after falling since mid-November.
Of the 17 analysts surveyed, 11 rate the stock at Buy or Strong Buy. They believe the stock has some room for growth, as their mean price target is more than nine percent higher than the current share price. That target is a level the stock has not seen since early 2008.
The share price reached a 52-week high in August but has pulled back about five percent since then. Shares are trading almost five percent higher than a year ago.
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