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Our takes on new Wall Street research analyzing 4 Club consumer stocks
There was lots of consumer stock research from Wall Street on Friday, including reports on Club names Costco (COST), Procter & Gamble (PG), beer maker Constellation Brands (STZ) and off-price retailer TJX Companies (TJX). Here’s what they had to say and our take on their analysis. COST YTD mountain Costco YTD HSBC analysts started Costco with hold trading and a $600-per-share price target, implying 8% upside from Thursday’s close and 39 times HSBC’s fiscal 2024 price-to-earnings estimate. The stock currently trades at 36 times — about double the forward P/E of the S & P 500 and about 11% higher than COST’s 10-year average multiple. The analysts at HSBC put Costco at No. 4 among the top 10 U.S. retailers, which were ranked by 2022 total U.S. sales, both brick and mortar and online. The wholesale retailer’s “second to none value proposition” offers competitive prices that attract members, which help drive the company’s top-line growth. The analysts estimated Costco’s sales to grow 1 percentage point faster than the U.S. grocery market average, which is estimated by Coresight Research to be 5% in 2023 and 2024. That should translate to “additional market share gains.” HSBC also said Costco’s premium stock multiple is worth it given management’s strong execution, sustainable competitive advantages, and growth outlook. Costco is scheduled to report its fiscal 2023 fourth quarter after the bell this coming Tuesday. PG YTD mountain Procter & Gamble YTD HSBC started Procter & Gamble with a buy rating and a Street-high $179 price target, implying nearly 18% upside from Thursday’s close and a 15 times enterprise value/EBITDA multiple on forward fiscal 2024 earnings estimates. That’s matches its 10-year average. Currently, P & G trades at an EV/EBITDA multiple of around 19 times compared to the S & P 500’s multiple of 14.7 times on that metric. (EBITDA stands for earnings before interest, taxes depreciation, and amortization. The analysts said that P & G has built “one of the strongest set of capabilities in the consumer staples sector.” The analysts like P & G for its leadership in household categories, pricing power, focus on profits, strong free cash flow conversion and strong balance sheet. “We do not see any threat to P & G’s leadership, and we believe favorable short-term growth potential exists in its categories,” the analysts wrote. The Club’s take: Costco and Procter & Gamble are the best of breed companies to own in in any kind of economic environment. You will not see us trade Costco. We’re in a period where consumers are seeking value and Costco offers that to its members by selling in bulk. In fact, its value proposition is so strong that it has the ability to charge higher membership fees, which is a move we are waiting on management to make. We’re also anticipating a potential special dividend this year. These are two would-be positive catalysts for the stock are overdue based on historical precedent. As for P & G, the comapny sells staples that consumers will continue to prioritize even during tougher economic times. Moreover, as input costs come down, we expect selling prices to hold firm, allwing for increased profits as margins expand. STZ YTD mountain Constellation Brands (STZ) Goldman Sachs raised its price target on Constellation Brands by $30 per share to $305, implying nearly 19% upside from Thursday’s close and a calendar year 2024 P/E multiple of 22.1 times. That’s a bit higher than its current and historical P/E multiples. The analysts reiterated their buy rating. According to the analysts’ latest bottom-up distribution analysis, the Mexican beer maker can generate total beer sales growth “at the high-end of management’s 7% to 9% growth” in the coming five years given “very strong” beer volume trends. Goldman expects the company’s brands to be “big winners” this year as its Modelo and Corona flagships gain shelf space, adding that such a dynamic demonstrates “strong, intrinsic attractiveness to retailers.” Goldman is also bullish on Constellation’s upcoming fiscal 2024 second-quarter earnings, set to come out before the bell on Oct. 5, as well as the company’s Investor Day, scheduled for Nov. 2. The analysts view these two events as positive catalysts for the stock. The Club’s take: Shares of Constellatio Brands have rallied roughly 12% year-to-date as its strong portfolio of Mexican beers continues to be a top choice among consumers. We don’t think that it’s done running. Especially after CEO Bill Newlands teamed up with Elliott Management, an activist firm known to shake things up and create value for shareholders. Since the company’s Wine & Spirits category isn’t growing like its dominant beer business, which represents a majority of its revenue, Jim believes it could be prudent for Constellation to divest it and become a “pure play beer company,” and use that money to buy back stock. TJX YTD mountain TJX Companies YTD In a note Friday, UBS sees department stores still losing share to off-price retailers in both sales and earnings before interest and taxes (EBIT) dollars over the next 10 years and beyond. At the same time, however, the analysts believe a difficult economic climate with elevated interest rates and stubborn inflation will have a “larger than anticipated impact on off-price retailers’ core customers,” who are cost-conscious and looking for bargains. Still, UBS thinks TJX, which operates the T.J. Maxx, Marshalls and HomeGoods chains, will be “relatively more resilient,” even though it may have a challenging time meeting investor growth expectations. The analysts have a neutral (hold) rating on TJX shares with a $90-per-share price target and sell ratings on rivals Burlington (BURL) and Ross Stores (ROST). The Club’s take: It’s never been a better time to be an off-price retailer in our view. We prefer TJX since it offers high-quality merchandise at value prices. According to TJX, the marketplace is loaded with quality buying opportunities, creating a treasure hunt experience, management said on its latest post-earnings call . That’s creating higher customer traffic. TJX is the best-run retailer on the line that has the right merchandise to serve budget-conscious consumers — a key factor as the middle-income cohort is feeling the greatest impact from inflation and therefore heavily focused on getting the best bang for their buck. We continue to see huge momentum in its business which should thrive even as shoppers are cautious around discretionary purchases. (Jim Cramer’s Charitable Trust is long COST, PG, STZ, TJX. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Customers wait in line to check out purchases at Costco store on June 28, 2023 in Teterboro, New Jersey. Costco is cracking down on membership card sharing at its stores.
Kena Betancur | Corbis News | Getty Images
There was lots of consumer stock research from Wall Street on Friday, including reports on Club names Costco (COST), Procter & Gamble (PG), beer maker Constellation Brands (STZ) and off-price retailer TJX Companies (TJX). Here’s what they had to say and our take on their analysis.
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