Inflationary pressures continue to weigh on the U.S. economy. Despite the Fed’s aggressive interest rate hikes several times this year, September's consumer price index (CPI) rose 0.4% sequentially and 8.2% from a year ago. With another hot CPI data and a strong employment report for September, the odds of the Fed raising interest rates by another 75 basis points in its next meeting are very high.
The Fed’s aggressive stance on persistent inflation has hit the economy’s growth. This is evident from the final estimate by the Bureau of Economic Analysis, which shows that the gross domestic product (GDP) shrank by 0.6% on an annualized basis in the second quarter.
Hence, the criteria for a technical recession have been met with two straight quarters of GDP declines. Moreover, a recent survey by The Conference Board showed that 98% of CEOs were preparing for a U.S. recession over the next year or year and a half.
Food and beverages, consumer essentials, and healthcare companies are expected to perform well during a recession due to their non-cyclical nature. Therefore, we think, investing in The Coca-Cola Company (KO), Humana Inc. (HUM), and Casey's General Stores, Inc. (CASY) could be wise.
The Coca-Cola Company (KO)
This global non-alcoholic beverage manufacturer sells its beverages under popular brands such as Coca-Cola, Sprite, Fanta, Dasani, Minute Maid, and Powerade.
On September 29, Molson Coors Beverage Company (TAP) announced that it had expanded its exclusive agreement with KO to develop and commercialize Topo Chico Spirited, a line of spirit-based ready-to-drink cocktails. This might boost KO’s revenue stream.
For the fiscal second quarter that ended July 1, KO’s non-GAAP net operating revenues increased 11.6% year-over-year to $11.30 billion. Non-GAAP net income rose 4.4% from the prior-year quarter to $3.06 billion. Non-GAAP net income per share improved by 2.9% from the same period the prior year to $0.70.
The consensus EPS estimate of $0.47 for the quarter ending December 2022 indicates a 4.4% year-over-year improvement. Likewise, the consensus revenue estimate for the same quarter of $9.81 billion reflects a rise of 3.6% from the prior-year period.
Moreover, KO has an impressive surprise earnings history, as it has topped consensus EPS estimates in each of the trailing four quarters. The company expects to deliver organic revenue growth between 12% and 13% in fiscal 2022.
The stock has gained marginally over the past year and 1.3% over the past five days to close its last trading session at $54.98.
KO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
KO has a Stability, Sentiment, and Quality grade of B. In the 34-stock Beverages industry, it is ranked #19. The industry is rated A.
Click here to see the additional POWR Ratings for KO (Growth, Value, and Momentum).
Humana Inc. (HUM)
HUM is a health and well-being company that operates through its three broad segments, Retail; Group and Specialty; and Healthcare Services. The company provides medical and supplemental benefit plans to individuals.
On October 3, HUM released details of its Medicare Advantage and Medicare Prescription Drug Plan offerings for 2023. The company is expected to expand Medicare HMO offerings into 260 new counties and introduce Medicare LPPO plans in 260 new counties. This should benefit the company in the near term.
HUM’s adjusted revenues increased 15.3% year-over-year to $23.72 billion in the fiscal second quarter that ended June 30. Adjusted pretax income and adjusted EPS improved 26.7% and 25.8% from the prior-year period to $1.43 billion and $8.67, respectively.
Street EPS estimate for the quarter that ended September 2022 of $6.28 indicates a 30% year-over-year increase. Likewise, Street revenue estimate of $22.69 billion for the same quarter reflects a rise of 8.7% from the prior-year quarter. In addition, HUM has beaten consensus EPS estimates in each of the trailing four quarters, which is impressive.
In September, the company revealed a mid-term adjusted EPS target of $37.00 per share for the fiscal year 2025, reflecting a 14% CAGR over its updated fiscal 2022 adjusted EPS outlook of approximately $25.00.
Over the past year, the stock has gained 13.4%. It has gained 7.8% year-to-date to close its last trading session at $500.
It’s no surprise that HUM has an overall B rating, which translates to Buy in our POWR Ratings system. The stock also has a B grade for Value and Sentiment. It is ranked #6 out of 11 stocks in the Medical – Health Insurance industry. The industry is rated A.
To see the additional POWR Ratings for Growth, Momentum, Stability, and Quality for HUM, click here.
Casey's General Stores, Inc. (CASY)
CASY operates as a convenience store chain providing freshly prepared foods, tobacco and nicotine products, and other items. The company also provides motor fuel for sale on a self-service basis.
In September, Graphite Connect, a social network for supplier relationship and data management, announced that CASY had selected it to bring more efficiency, simplicity, and transparency to onboarding and managing suppliers. This aligns with the company’s digital transformation efforts.
For the fiscal first quarter that ended July 31, CASY’s total revenue increased 40% year-over-year to $4.45 billion. Net income and EPS came in at $152.93 million and $4.09, up 28.3% and 28.2% from the prior-year quarter, respectively.
Analysts expect CASY’s EPS to improve 10.9% year-over-year to $10.09 for the fiscal year 2023. Likewise, Street expects its revenue for the same year to increase 23% from the prior year to $15.93 billion. Additionally, CASY has topped consensus EPS estimates in three out of the trailing four quarters.
The company expects same-store inside sales to increase by 4% to 6% in fiscal 2023. CASY expects to add approximately 80 stores and exceed its stated three-year commitment of 345 units.
CASY’s shares have gained 8% over the past year and 2.6% year-to-date to close its last trading session at $202.38.
The promising prospect is reflected in CASY’s POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
CASY has a Growth, Value, Sentiment, and Quality grade of B. In the 38-stock Grocery/Big Box Retailers industry, it is ranked #5. The industry is rated A.
In addition to the POWR Rating grades we’ve stated above, one can see CASY’s ratings for Momentum and Stability here.
KO shares rose $0.38 (+0.69%) in premarket trading Monday. Year-to-date, KO has declined -5.07%, versus a -23.83% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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