Thanksgiving feasts will likely draw larger crowds than last year and incur higher costs.
A recent Bank of America note detailed which companies have the most exposure to the top holiday dishes due to supply chain bottlenecks, inflation, lingering COVID concerns, low inventories, and evolving consumer behaviors.
The companies are The Campbell's Soup Company CPB General Mills GIS, The Kraft Heinz Company KHC Conagra Brands CAG Hormel Foods Corporation HRL McCormick Company MKC and The Duckhorn Portfolio, Inc. NAPA We looked at companies that have exposures to top Thanksgiving dishes: turkey, stuffing, dinner rolls, gravy, green bean casserole, potatoes, mac cheese dessert, and wine. CPB, GIS, KHC, CAG, MKC, HRL and NAPA are the most exposed. KHC and NAPA are our favorite stocks in this group. More pricing power is seen in the Thanksgiving center of the plate' items.
The data from social media conversations shows mentions of vaccines on the rise, while mentions of FaceTime, social distancing and canceled declined, according to the analysts. Friendsgiving and day drinking also saw increases. If consumers opt for turkey or ham, mashed potatoes or marshmallow topped sweet potatoes, traditional or plant-based options, they're likely to pay more with inflation hitting food prices.
Bryan Spillane, senior food and beverage analyst at BofA Global Research, told Yahoo Finance Live that there was not a lot of pricing power this year when you look at more of the center of the plate type of food items. Food companies, in particular, started raising prices in the middle of the year, and there has been virtually no elasticity. Consumer behavior is expected to change at some point, according to Spillane.
At what point does the consumer start to push back and do we start to see some trading down or other behavior that shows consumers are feeling the pinch? Spillane said something.
BofA gave an underperform rating on Campbell's, the top company with the most upside or downside potential.
Campbell is struggling with a few issues, Spillane said. One is that they are experiencing a lot of inflation. That's an area where there might be some sensitivity around passing those prices through. Spillane said that the iconic soup company also has a lot of direct and indirect exposure to labor shortages and higher labor costs.
BofA also gave McCormick Company an underperform rating, with an $84 price target.
McCormick is still trading at a premium, Spillane said, although it's benefitted from people cooking at home more in the last 18 months, you're going to see less of that cooking at home behavior. It's going to create an overhang for McCormick. The Hershey HSY is well-positioned, according to Spillane, especially when it comes to the inflationary environment.
He said that Hershey is set up really well to protect margins, maybe grow margins as we cycle through some of this inflation because of the combination of a category that's still growing very strongly, where there's still a lot of product innovation and where there's been demonstrated pricing power.