The Fed announced a 50-basis point rate hike Wednesday, taking the borrowing rate to a targeted range of 4.25% and 4.5%, the highest level in 15 years. In addition, as per its median forecast released on the same day, the Federal Reserve will hike interest rates to as high as 5.1% in 2023 before the central bank ends its fight against the soaring prices.
While the market had earlier expected a stance reversal by the central bank, the Fed’s hawkish tone crushed investors’ optimism, sending stocks to sink.
Moreover, a Reuters poll of economists showed that U.S. economic growth was expected to slow to 0.3% in 2023. It also suggests a 60% chance of a U.S. recession next year.
Given this backdrop, fundamentally strong stocks PepsiCo, Inc. (PEP), Humana Inc. (HUM), and Kroger Co. (KR) might be safe investments for the long term.
PepsiCo, Inc. (PEP)
PEP is a global food and beverage giant with a broad portfolio of soft drinks. The company’s segments include Frito-Lay North America, Quaker Foods North America, and PepsiCo Beverages North America. Its product offerings also include branded dips, cheese-flavored snacks, tortillas, and dairy products.
On November 17, PEP declared a quarterly dividend of $1.15 per share payable on January 6, 2023, which reflects a 7% increase compared to a year-earlier period.
PEP’s annual dividend of $4.60 translates to a 2.55% yield. Over the last five years, PEP’s dividend payouts have grown at a 7.4% CAGR. PEP has paid consecutive quarterly cash dividends since 1965, and this year marked the company’s 50th consecutive annual dividend increase.
PEP’s net revenue increased 8.8% year-over-year to $21.97 billion for the third quarter that ended September 3, 2022. The company’s gross profit increased 8% year-over-year to $11.66 billion, while its non-GAAP operating profit rose 10.9% from the year-ago value to $3.59 billion.
Also, its non-GAAP net income increased 10.1% year-over-year to $2.73 billion, and its non-GAAP EPS came in at $1.97, increasing 10.1% year-over-year.
The consensus EPS estimate of $6.78 for the current fiscal year ending December 2022 represents an 8.4% improvement year-over-year. The consensus revenue estimate of $84.88 billion for the current year indicates a 6.8% increase from last year. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
The stock has gained 14.2% over the past six months to close the last trading session at $180.25. It has a 24-month beta of 0.52.
PEP’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
PEP has an A grade for Quality and a B for Growth, Stability, and Sentiment. Among the 33 stocks in the A-rated Beverages industry, it is ranked #7.
Click here to see the other ratings of PEP for Value and Momentum.
Humana Inc. (HUM)
HUM is a health and well-being company that operates through three segments: Retail; Group and Specialty; and Healthcare Services. The company provides medical and supplemental benefit plans to individuals.
On November 22, HUM announced the completion of its public offering of $1.25 billion in aggregate principal amount of senior notes. These senior notes are comprised of $500 million of the company’s 5.750% senior notes due 2028 at 99.705% of the principal amount and $750 million of the company’s 5.875% senior notes due 2033 at 99.508% of the principal amount. The company expects net proceeds of approximately $1.23 billion.
On October 26, HUM and Monogram Health, a kidney-care provider, announced a new value-based care agreement for most Humana Medicare Advantage HMO and PPO plan members in four states for people with chronic kidney disease.
Carl Daley, HUM Senior Vice President of Retail Strategy and Operations, said, “Building on our existing relationship with Monogram is an important way we can provide the highest levels of support and access to care for our members.”
On October 27, HUM announced a dividend of $0.7875 per share, payable on January 27, 2023. The company’s annual dividend of $3.15 per share yields 0.60 % at the current price. HUM’s dividends grew at 12.5% CAGR over the past three years and 15.5% CAGR over the last five years. The company has had five consecutive years of dividend growth.
HUM’s adjusted revenue increased 9% year-over-year to $22.75 billion in the fiscal third quarter of 2022, which ended September 30. Its adjusted operating cash flows came in at $2.68 billion, and its adjusted EPS rose 42.4% from the prior-year period to $6.88.
Street expects HUM’s EPS to increase 21.4% year-over-year to $25.06 in the current fiscal year ending December 2022. Likewise, its revenue estimate of $92.81 billion for the same year indicates an improvement of 11.7% from the prior year. HUM has surpassed its consensus EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 17.4% over the past six months to close its last trading session at $508.44. HUM has a 24-month beta of 0.57.
It’s no surprise that HUM has an overall A rating, which translates to Strong Buy in our POWR Ratings system.
HUM has a B grade for Growth, Value, and Quality. It is ranked #3 out of the 11 stocks in the A-rated Medical – Health Insurance industry.
Click here to access additional HUM ratings for Momentum, Sentiment, and Stability.
The Kroger Co. (KR)
KR operates as a retailer in the United States. The company operates combination food and drug stores, multi-department stores, marketplace stores, and price-impact warehouses.
On December 12, KR announced the launch of floral and sushi delivery on DoorDash Inc. Cl A (DASH) marketplace from banner stores across the country. The new delivery option through DoorDash marks the latest expansion of the grocer’s seamless experience, providing customers with even more opportunities to get fresh, affordable products.
On December 7, KR announced the opening of the 1,000th Murray’s Cheese shop in Kroger banner stores, bringing Murray’s shops to more than 30 states across America. The new shop should help drive up the company’s revenue ahead of the holiday season.
On September 15, KR declared a quarterly dividend of 26 cents per share to be paid to shareholders on December 1, 2022. Its annual dividend of $1.04 yields 2.32% on prevailing prices.
The company’s dividend payouts have increased at a 16.1% CAGR over the past three years and a 13.9% CAGR over the past five years, and it has 16 years of consecutive dividend growth.
KR’s sales increased 7.3% year-over-year to $34.20 billion in the fiscal third quarter ending November 5, 2022. Its adjusted EBITDA grew 10.9% from the year-ago value to $7.78 billion, while its adjusted EPS improved 12.8% year-over-year to $0.88.
Analysts expect KR’s revenue for the fiscal year ending January 2023 to come in at $148.33 billion, indicating an increase of 7.6% year-over-year. The company’s EPS is expected to grow 12.2% year-over-year to $4.13 in the same year. Moreover, the company has surpassed the consensus EPS estimates in each of the trailing four quarters.
KR stock declined 2.8% intraday to close its last trading session at $43.49. It has a 24-month beta of 0.57.
Its impressive prospects are reflected in its POWR Ratings. KR has an overall rating of A, which translates to Strong Buy in our proprietary rating system.
It has a B grade in Value and Quality. KR is ranked #10 out of the 39 stocks in the A-rated Grocery/Big Box Retailers industry.
In addition to the POWR Rating grades just highlighted, you can see KR ratings for Sentiment, Momentum, Growth, and Stability here.
PEP shares fell $0.78 (-0.43%) in premarket trading Friday. Year-to-date, PEP has gained 6.08%, versus a -18.22% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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