For Immediate Release
Chicago, IL – January 10, 2023 – Zacks Equity Research shares Campbell Soup Company CPB as the Bull of the Day and Eli Lilly & Co. LLY as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Tenaris S.A. TS, Carrefour SA CRRFY and Suzano S.A. SUZ.
Here is a synopsis of all five stocks.
Bull of the Day:
Campbell Soup Company (CPB) delivered a beat-and-raise quarter for their fiscal 2023 Q1 results in early December, and estimates have pushed up since making the stock a Zacks #1 Rank again.
FY'23 ends in July and analysts boosted estimates to EPS of $2.99 for 5% growth. More impressive, the FY'24 consensus rose from $3.06 to $3.16 for 5.8% growth.
My colleague Derek Lewis profiled Campbell's in his December 22 article This Top Consumer Staples Stock Is Pushing 52-Week Highs and here's what he had to say...
Consumer Staples stocks can generate revenue in all economic situations thanks to consistent product demand, explaining why the sector has performed better than most YTD.
A big-time company residing in the realm, Campbell Soup, is seeing its shares march toward 52-week highs, undoubtedly a major positive.
Derek's article has plenty of charts and graphs that illustrate the staying power of America's staple soup so be sure to dig in.
First Quarter Highlights
Taking into account its solid results that reflect continued demand and enhanced supply chain execution, management raised its fiscal 2023 net sales, adjusted earnings Before Interest and Taxes (EBIT) and adjusted earnings per share (EPS) view. The outlook also reflects the dynamic economic environment.
In the quarter, the company generated $10 million in savings under its multi-year cost-saving program, including Snyder’s-Lance synergies, bringing total program-to-date cost savings to $860 million. Management remains on track to deliver savings worth $1 billion by fiscal 2025-end.
Adjusted earnings from continuing operations increased 15% year over year to $1.02 per share, mainly reflecting a rise in adjusted EBIT and somewhat offset by a rise in the adjusted effective tax rate. The metric surpassed the Zacks Consensus Estimate of 86 cents.
Net sales of $2,575 million increased 15% year over year and surpassed the Zacks Consensus Estimate of $2,427.5 million. Organic net sales grew 15% year over year. The upside can be attributed to brand strength, inflation-driven pricing and continued supply recovery.
The company’s adjusted gross profit rose to $829 million from $727 million reported in the year-ago quarter. Adjusted gross profit margin contracted 30 basis points (bps) to 32.2% due to continued cost inflation and increased other supply chain costs as well as unfavorable volume/ mix. Nevertheless, inflation-driven pricing actions and productivity improvements offered some respite.
Adjusted EBIT grew 15% to reach $449 million mainly driven by increased adjusted gross profit. These were somewhat offset by rising marketing and selling expenses as well as increased adjusted other expenses.
Meals & Beverages: Net sales increased 15% year over year to $1,455 million. Organic sales also rose 15%, mainly due to a rise in U.S. retail products that include U.S. soup and Prego pasta sauces and benefits from foodservice. Inflation-driven pricing, sales allowances and reduced promotional spending were somewhat mitigated by volume declines. Sales of U.S. soup increased 11% led by a sales rise in ready-to-serve soups, condensed soups and broth. Operating earnings in the unit jumped 18%.
Snacks: Net sales in the division rose 15% (also organically) to $1,120 million. The upside can be attributed to sales of power brands which rose 21%. Sales growth was fueled by a rise in cookies and crackers, specifically Goldfish crackers and in salty snacks, Snyder's of Hanover pretzels as well as Kettle Brand and CapeCod potato chips.
Inflation-driven pricing and sales allowances were somewhat offset by soft volume and higher promotional spending. Segmental operating earnings increased 20%.
Other Financial Details
As of Oct 30, 2022, Campbell's total cash and cash equivalents stood at $130 million, long-term debt was $3,994 million, and total equity amounted to $3,469 million. CPB generated $227 million as cash flow from operations for three months ended Oct 30, 2022. Capital expenditure amounted to $77 million in the said period.
Management paid $115 million of cash dividends and bought back nearly $41 million in the reported quarter. At the end of the first quarter, it had nearly $375 million remaining under its current $500-million share repurchase plan and almost $131 million remaining under its $250 million anti-dilutive share repurchase plan.
Fiscal 2023 Guidance
For fiscal 2023, the company now expects 7-9% net sales growth, with 7-9% organic sales growth. Earlier, management had expected 4-6% net sales growth, with 4-6% organic sales growth for fiscal 2023. Adjusted EBIT is now forecast to be up 2.5-6.5% compared with the previous view of 1-5% growth. Adjusted EPS is now envisioned to be up 2-5% to come in at $2.90-$3.00. Earlier, adjusted EPS was projected to be flat to up 4%.
Bottom line on CPB: Investors will likely continue to rotate money into safter areas of the market and solid consumer staple brands like Campbell Soup should be beneficiaries.
Bear of the Day:
Eli Lilly & Co. announced its financial guidance for 2023 on December 13. Shares have traded down since then as the company’s 2023 earnings projections were below analyst expectations.
But the stock had some room to give back. This year, Lilly’s shares had risen about 30% compared with the industry’s 10%+ rise.
The primary reason LLY is in the cellar of the Zacks Rank is that analysts responded to the guidance by lowering 2023 EPS estimates 7.3% from $9.14 to $8.47, representing only 9% growth. As recently as 90 days ago, the full-year estimate called for $9.37.
2023 Earnings Guidance Misses Expectations
Lilly expects 2023 revenues to be between $30.3 billion and $30.8 billion, while adjusted earnings per share are expected to be between $8.10 and $8.30. However, the company’s earnings expectations are below both our model estimates and Zacks Consensus Estimate of $9.07 and $9.14 per share, respectively.
With regard to sales, our model estimates and the Zacks Consensus Estimate of $30.5 billion and $30.6 billion, respectively, are within the company’s guidance range.
Eli Lilly’s 2023 sales are expected to be driven by volume increases from key growth products. However, lower revenues from the cancer drug Alimta due to its loss of patent exclusivity and the negative impact of foreign exchange rates are expected to offset some of the top-line gains. Management does not expect to record any revenue from sales of COVID therapies.
The adjusted gross margin is expected to be approximately 79%.
Marketing, selling and administrative expenses are expected to be $6.9-$7.1 billion. Research and development expenses are expected to be in the range of $8.2 billion to $8.4 billion. The tax rate is expected to be around 16% for the full year.
Adjusted other income (expenses) for 2022 is expected to be in the range of $200-$100 million.
Maintains 2022 Guidance
Lilly maintained its previously issued guidance for revenues and earnings. The company expects revenues to be between $28.5-$29.0 billion.
Adjusted earnings per share are expected to be between $7.70 and $7.85, indicating growth in the range of 4% to 6% year over year.
The adjusted gross margin is expected to be approximately 78%, while the adjusted operating margin is expected to be around 29%.
Marketing, selling and administrative expenses are expected to be in the range of $6.4-$6.6 billion. Research and development expense is expected in the range of $7.1-$7.3 billion. The tax rate for the full year is expected to be approximately 13% to 14%.
New Product Launches
Eli Lilly expects to launch four new drugs – donanemab, mirikizumab, lebrikizumab and pirtobrutinib – targeting Alzheimer's disease (AD), atopic dermatitis, ulcerative colitis and mantle cell lymphoma (MCL) indications, respectively. These drugs are currently under regulatory review in the United States and some other countries.
A final decision from the FDA on donanemab is expected in early 2023. Donanemab is expected to be a key competitor to Biogen’s (BIIB Quick QuoteBIIB - Research Report) controversial Alzheimer’s drug Aduhelm (aducanumab), which was approved by the FDA last year in June. Aduhelm’s FDA approval faced a lot of criticism about its mixed efficacy results, the FDA selection of the accelerated approval path, and the regulatory process in general.
All these issues affected demand, patient access and reimbursement of this key new drug for Biogen, which has resulted in a slow launch. Biogen’s launch of the drug also suffered after Medicare limited coverage for Aduhelm only for patients enrolled in CMS-approved studies.
This year, Eli Lilly launched its diabetes drug, Mounjaro, which has shown an impressive initial uptake, recording $203.3 million in revenues since its launch this May. Earlier this year, management announced data from a late-stage study which showed that treatment with the drug also led up to 22.5% weight loss in adults with obesity.
A regulatory submission seeking label expansion for Mounjaro in obesity is also planned by this year’s end. An expansion in the obesity indication would help Lilly rake in billions of dollars from Mounjaro sales.
3 Value Stocks with Growth in the Cards
This has to be the golden year of value investing. With inflation remaining far from the Fed’s goals, there’s every reason to think that interest rates will continue to climb for a while before stabilizing. From the looks of things, and since employment numbers are still so strong, the painful period is likely to stretch out past 2023 and into 2024. This sentiment is pulling money out of the markets and leading to low valuations.
But it’s also making a great hunting ground for value investors with a slightly longer investment horizon. Because as many of us already know, we need to buy when others are selling so we can sell when they’re buying. That’s the way to make good profits. Or we may want to hold into retirement (if that makes sense with respect to our portfolio and investment goals).
Whatever be the case, we want to select stocks that are likely to grow in the long term. But relatively stronger prospects in 2023 don’t hurt either.
So today, my selections belong to industries with secular growth drivers that are also high up in the Zacks ranks. Tenaris, for example, makes steel tubing, an industry that’s currently in the top 5% of Zacks-classified industries. Carrefour is a part of the Retail – Supermarkets industry, which is in the top 4%. And Suzano, which produces Paper and Related Products, is in the top 8%. By going with stocks from these industries, we increase our chances of success because there are industry-wide factors that support the shares. (More on this below).
Second, analyst opinion is reflected in the estimate revisions trend, which in turn is reflected in the Zacks Rank. Therefore, when we combine attractive industries with buy-ranked stocks, we are bound to come up with names that have better potential.
And finally, we can narrow the list down further to stocks that are expected to grow their earnings in 2023.
Take a look here-
Tenaris produces and sells seamless and welded steel tubular products and related services mainly for the oil and gas industry, but also other industrial applications. The company operates in North America, South America, Europe, the Middle East and Africa, and the Asia Pacific.
Despite the geopolitical and macro-economic risk, these are interesting times for a producer of oil country tubular goods (“OCTG”). Concerns about slowing global economic growth have taken energy prices off their recent highs.
However, investment in infrastructure may be expected to continue given low levels of spare capacity and inventories, uncertainty about the impact of further sanctions on Russian exports and a renewed focus on energy security around the world. As a result, drilling activity increased last year and is expected to surpass pre-COVID levels in 2023. Pipeline activity is particularly strong in Argentina and the Middle East.
As a result, despite the high double-digit revenue growth and triple-digit earnings growth that it saw in 2022, Tenaris is expected to generate 21.1% revenue growth and 19.6% earnings growth this year. The estimate revision trend is positive with around 6.1% increase in the last 60 days.
The Zacks Rank #2 stock has a Value Score A and Growth Score C.
Tenaris also pays a dividend that yields 2.05%.
Carrefour operates hypermarkets, supermarkets, convenience stores, cash and carry stores and hypercash stores; e-commerce sites; and service stations in France, Spain, Italy, Belgium, Poland, Romania, Brazil, Argentina and Taiwan. Its stores offer fresh produce; local products; consumer goods; and non-food products like electronic and household appliances, textiles and childcare products.
The broad format of stores, heavy discounts and loyalty programs that the company offers has increased its appeal across its served markets and enabled it to take market share. As inflation rages on throughout the developed world, showing up in materials, production costs and distribution cost, consumers increasingly turned to its thrift-focused stores where many have been retained with the help of its successful loyalty programs. This scenario is likely to continue playing out in 2023.
Analysts currently expect 3.8% revenue growth and 22.9% earnings growth this year followed by 3.9% revenue growth and 14.7% earnings growth in 2024. This is no mean feat for a retail operation of the scale of Carrefour.
The Zacks Rank #2 stock has scored an A for both Value and Growth.
It also pays a dividend that currently yields 2.19%.
Suzano is engaged primarily in the production and sale of eucalyptus pulp and paper products in Brazil and internationally. It operates through the Pulp and Paper segments. The company offers coated and uncoated printing and writing papers, paperboards, tissue papers, market and fluff pulps; and lignin and its byproducts.
The outlook for the paper and related products industry (top 8% of Zacks-classified industries) is solid mainly because of increasing end-user demand for eco-friendly packaging and the big push in the pulp industry to develop its recycling infrastructure. Paper has always been the most easily biodegradable commodity.
It is the obvious choice as we move away from plastic packaging, especially of the single-use variety. But the fact that it comes from trees has been a sticking point with environmentalists because the destruction of tree cover is leading to ecological disaster. Demand in the next few years is expected to come mainly from chemical and industrial markets, as well as new application areas in developing markets.
Suzano is benefiting from strong pricing of its hardwood pulp in North America and Europe, where demand is strong as well as in China where demand is stable. However, new projects in South America saw roadblocks because of European sanctions on Russian wood. Higher input costs (fuels, wood) remain headwinds. The company has a hedging policy that moderates foreign exchange risk.
While current estimates for 2023 represent a decline from the very strong growth that Suzano saw in 2022, it’s worth pointing out that the revisions trend is highly encouraging, which means that analysts are optimistic about its future. As of now, the 2023 estimate is up 17.4% in the last 30 days. Since Suzano is expected to report on Feb 8, we will know more at that time.
The Zacks Rank #1 (Strong Buy) stocks has a Value Score A and Growth Score B.
Because of the strength of recent cash flows, it has returned value to investors. Its dividend yields 13.34%.
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