Bernstein analysts upgraded Kraft Heinz Co.’s stock KHC to outperform from market perform on Tuesday, and upgraded J.M. Smucker Co. SJM to market perform from underperform and said the selling of the two stocks amid concerns they will be hurt by the proliferation of a new class of weight-loss drugs is overdone. In 2022, U.S. food companies got a boost from a flight to safety and “surprisingly solid price elasticities,” analysts led by Alexia Howard wrote in a note to clients. Then in 2023, that narrative turned based on worsening elasticities and the potential impact from GLP-1 drugs, such as Wegovy and Monjauro, that have proved highly effective in helping obese patients lose weight. Their popularity has led analysts to speculate that food companies that make fatty or salty snacks or processed food will lose ground as consumer opt for lower-calorie choices. That has led to a 21% decline in U.S. food stocks in the year to date, compared with a 14% rise by the S&P 500, equal to a relative underperformance of about 35%, which is the worst absolute and relative underperformance for the sector in over two decades, the analysts wrote. In the sector, oreo maker Mondelez International Inc. MDLZ and Simply Good Foods Co. SMPL have fared best, while Campbell Soup Co. CPB and Smucker have performed the worst. “We believe the risk-reward for the sector is now more balanced, with near-term performance skewed to the upside,” the analysts wrote. Kraft Heinz was up 1.6% premarket, while Smucker was not yet traded.
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