On Tuesday, Federal Reserve Chair Jerome Powell said the Fed’s aim to keep increasing interest rates until it reduces inflationary pressure. The announcement has intensified current, bearish sentiment in the market. Over the past few weeks, the major U.S. indexes have been facing intense selling pressure. Over the past month, the S&P 500 Index has declined 11.2%, while the Nasdaq Composite Index has slumped 13.6%.
Analysts have raised concerns that the Fed’s tighter monetary policy could precipitate a recession. Amid the current inflationary environment, investors are shifting toward defensive stocks because they can weather uncertain market conditions better than stocks in many other sectors. Companies from defensive sectors, including healthcare, utilities, and consumer staples, tend to have recession-proof business models, given the stable demand for their products.
So, amid the growing recessionary concerns, we think betting on defensive stocks like CVS Health Corporation (CVS), PepsiCo, Inc. (PEP), and Albertsons Companies, Inc. (ACI) could be wise now.
CVS Health Corporation (CVS)
CVS provides health services in the United States. The company operates through four segments: Pharmacy Services; Retail/LTC; Health Care Benefits; and Corporate/Other. CVS offers prescription drugs, traditional and consumer-directed health insurance products, pharmacy benefit management solutions, and consumer health and beauty products. It operates more than 9,900 retail locations, 1,200 MinuteClinic locations, online pharmacy websites, and onsite pharmacies.
On Feb. 22, 2022, CVS Pharmacy, the retail division of CVS launched six new innovative home health care products. The new CVS Health by Michael Graves Design features a wide range of products, including comfort grip chairs, easy-fold travel walkers, convertible shower chairs, and 3-in-1 comfort commodes. The product launches are the company's extension of the exclusive CVS Health product line, extending its customer reach and boosting sales.
In its fiscal 2022 first quarter, ended March 31, 2022, CVS's total revenues increased 11.2% year-over-year to $76.83 billion. Its adjusted operating income grew 6.6% year-over-year to $4.48 billion. Its adjusted income attributable to CVS and adjusted earnings per share came in at $2.94 billion and $2.22, respectively, registering a 9.1% and 8.8% increase, respectively, from the prior-year period. In addition, its net cash provided by operating activities rose 23.2% year-over-year to $3.56 billion.
Analysts expect CVS’ EPS to grow 7.6% year-over-year to $9.04 for its fiscal 2023. The $308.57 million consensus revenue estimate for its fiscal 2022 represents a 5.6% rise from the previous year. It is no surprise that the company has surpassed the consensus EPS and revenue estimates in each of the trailing four quarters.
The stock has gained 4.4% in price over the past year and closed yesterday's trading session at $93.14.
CVS' POWR Ratings reflect this promising outlook. It has an overall grade of A, which equating to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
CVS has a be grade for Value, Stability, and Sentiment. Within the A-rated Medical - Drug Stores industry, it is ranked #1 of 4 stocks. To see additional POWR Ratings (Momentum, Quality, and Growth) for CVS, click here.
Click here to checkout our Healthcare Sector Report for 2022
PepsiCo, Inc. (PEP)
PEP in Harrison, N.Y., manufactures, markets, and sells various beverages and convenient foods worldwide. The company operates through seven segments: Frito-Lay North America; Quaker Foods North America; PepsiCo Beverages North America; Latin America; Europe; Africa, Middle East, and South Asia; and Asia Pacific, Australia and New Zealand and China Region. It serves wholesale and other distributors, grocery stores, convenience stores, foodservice customers, mass merchandisers, and e-commerce retailers.
On May 3, PEP’s board of directors declared a $1.15 per share quarterly dividend, registering a 7% increase from the prior-year period. This dividend is payable on June 30, 2022. PEP has paid consecutive quarterly cash dividends since 1965 and marks 2022 as the company’s 50th consecutive annual dividend increase. This reflects a strong financial position and commitment to delivering value to shareholders.
In March, PEP and Beyond Meat, Inc.’s (BYND) joint venture, Planet Partnership, debuted Beyond Meat® Jerky at retailers nationwide. Beyond Meat Jerky offers a flavored, on-the-go snack experience that is plant-based meat, and it furthers PEP’s and BYND’s shared passion for creating sustainable products. This is expected to boost the company’s profitability.
PEP's net revenue increased 9.3% year-over-year to $16.20 billion in its fiscal 2022 first quarter, ended March 19, 2022. Its operating profit rose 127.8% year-over-year to $5.27 billion. Its income before income taxes improved 137.4% from its year-ago value to $5.16 billion. Its net income attributable to PEP and net income attributable to PEP per common share came in at $4.26 billion and $3.06, respectively, registering an increase of 148.6% and 146.8% year-over-year.
The $26.27 billion consensus revenue estimate for its fiscal 2022 fourth quarter, ending Dec. 31, 2022, represents a 4% increase from the prior-year period. The $1.75 consensus EPS estimate for the same quarter indicates a 14.5% year-over-year rise. The company has an impressive revenue and earnings history; it has topped the consensus revenue and EPS estimates in each of the trailing four quarters.
Shares of PEP have increased 10.8% in price over the past year and closed yesterday's trading session at $161.20.
PEP's strong fundamentals are reflected in its POWR Ratings. The stock has an overall grade of B, which translates to Buy in our proprietary rating system.
PEP has a grade of A for Quality and a B for Sentiment. Within the A-rated Beverages industry, it is ranked #12 of 36 stocks. To see additional POWR Ratings (Momentum, Value, Stability, and Growth) for PEP, click here.
Albertsons Companies, Inc. (ACI)
ACI in Boise, Idaho, operates food and drug stores in the United States. The company’s food and drug stores provide grocery products, general merchandise, health and beauty care products, fuel, pharmacy, and other items. In addition, it manufactures and processes food products for sale in stores. ACI operates more than 2,276 stores under various banners, 1,722 pharmacies, 1,317 in-store branded coffee shops, 402 adjacent fuel centers, 22 distribution centers, and 20 manufacturing facilities.
On May 3, ACI and Uber Technologies, Inc. (UBER) expanded their partnership to include more than 2,000 of the grocery’s banner stores nationwide, including Albertsons, Safeway, Jewel-Osco, and ACME, Tom Thumb, and more through Uber Eats. ACI stores are more accessible within the UberEats app and have increased availability across grocery and convenience categories for customers to enable the growth. This partnership might expand the company’s customer reach and boost revenue streams.
On March 22, ACI and Cue Health Inc. (HLTH) partnered to provide COVID-19 testing in pharmacies across the U.S. “To offer customers convenient, quick, and accurate solutions we have partnered with Cue Health to feature these tests in our community pharmacies. Adding this diagnostic test expands options for our customers to access proactive health and wellness solutions at our stores,” said Omer Gajial, ACI’s EVP of Pharmacy and Health.
In its fiscal 2021 fourth quarter, ended Feb. 26, 2022, ACI's net sales and other revenue increased 10.2% year-over-year to $17.38 billion, while its gross margin improved 9.3% from the year-ago value to $4.98 billion. Its operating income grew 480% year-over-year to $664.30 million. The company's adjusted EBITDA rose 17.1% year-over-year to $1.07 billion. Its adjusted net income and adjusted net income per Class A common share came in at $436.80 million and $0.75, respectively, registering an increase of 25.8% and 25% from the prior-year period.
Analysts expect ACI's revenue for its fiscal year 2022 first quarter, ending May 31, 2022, to come in at $22.65 billion, representing a 6.5% rise from the same period in 2021. Street expects the company's EPS for the current quarter to be $0.86, representing a 10.3% increase year-over-year. It is no surprise that the company has topped the consensus revenue and EPS estimates in each of the trailing four quarters.
The stock has increased 44.9% in price over the past year and closed yesterday's trading session at $27.09.
ACI’s POWR Ratings reflect a strong outlook. The stock has an overall rating of A, which translates to Strong Buy in our POWR Ratings system.
ACI has a grade of A for Growth and a B for Quality and Value. It is ranked #2 of 38 stocks in the A-rated Grocery/Big Box Retailers industry. Click here to see ACI’s POWR Ratings for Momentum, Stability, and Sentiment.
Note that ACI is one of the few stocks handpicked currently in the Reitmeister Total Return portfolio. Learn more here.
CVS shares were trading at $92.98 per share on Friday afternoon, down $0.16 (-0.17%). Year-to-date, CVS has declined -8.92%, versus a -19.22% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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