While inflation has eased considerably from last year’s record-high levels, it still remains elevated. Investors looking to protect their portfolio against inflation risks should consider companies with robust cash flows and solid dividends. To that end, AstraZeneca PLC (AZN), McDonald's Corporation (MCD), and Flowers Foods, Inc. (FLO) could be safe investments now.
Before diving deeper into the fundamentals of these stocks, let’s discuss why the stock market is likely to remain volatile this year.
March’s consumer price index (CPI) data confirmed that inflation is on a downtrend as prices rose 0.1% sequentially and 5% annually in March. However, the core consumer prices, which exclude food and energy items, rose 0.4% sequentially and 5.6% year-over-year. In addition, the U.S. economy added 236,000 jobs in March, indicating strong job growth.
Yesterday, in line with analyst expectations, the Federal Reserve announced a 25 basis-point interest rate hike, its tenth hike since last year. The latest rate hike pushes the Fed funds rate to between 5% and 5.25%, the highest since September 2007. The Fed has dropped a hint that the current tightening cycle is ending.
Fed Chair Powell said, “People did talk about pausing, but not so much at this meeting. There’s a sense that we’re much closer to the end of this than to the beginning. If you add up all the tightening that’s going on through various channels, we feel like we’re getting close or maybe even there, but again that is going to be an ongoing assessment.”
Bank of America’s U.S. economist Michael Gapen said, “For now, inflation still dominates, and data in hand outweighed uncertainty from bank stress in terms of the decision to raise rates in May. We think the Fed has reached its terminal rate in this tightening cycle, though we note that there are two employment reports and CPI inflation reports before the June FOMC meeting.”
“Should regional bank stress stabilize, labor markets stay tight, and inflation stay elevated, a rate hike in June could become appropriate,” he added.
Amid all this uncertainty, investing in stable and dividend-paying stocks could be wise for a steady income stream.
Let’s take a closer look at the fundamentals of the featured stocks.
AstraZeneca PLC (AZN)
Headquartered in Cambridge, the United Kingdom, AZN is focused on discovering, developing, manufacturing, and commercializing prescription medicines. It markets products for cardiovascular, renal, and metabolism diseases, oncology, respiratory, immunology, and rare diseases.
On February 24, 2023, AZN announced the acquisition of CinCor Pharma, Inc. (CINC), a biopharmaceutical company focused on developing novel treatments for resistant and uncontrolled hypertension and chronic kidney disease.
The acquisition bolsters AZN’s cardiorenal pipeline by adding baxdrostat (CIN-107), an aldosterone synthase inhibitor (ASI) for blood pressure lowering in treatment-resistant hypertension, to its cardiorenal portfolio.
Over the last three years, AZN’s dividend payouts have grown at a 1.2% CAGR. Its four-year average dividend yield is 2.62%, and its forward annual dividend of $1.97 per share translates to a 2.64% yield. The company paid a semi-annual dividend of $0.99 per share on March 27, 2023.
In terms of the trailing-12-month gross profit margin, AZN’s 84.30% is 51.5% higher than the 55.66% industry average. Its 33.96% trailing-12-month EBITDA margin is considerably higher than the 2.17% industry average. Likewise, its trailing-12-month net income margin of 10.73% compares to the negative 6.99% industry average.
AZN’s gross profit for the first quarter ended March 31, 2023, increased 13.9% year-over-year to $8.97 billion. Its gross margin came in at 82%, compared to 68% in the prior-year quarter. Its profit after tax increased 365% year-over-year to $1.80 billion. Also, its EPS came in at $1.16, representing an increase of 364% year-over-year. In addition, its EBITDA increased 85.2% year-over-year to $4.05 billion.
Analysts expect AZN’s EPS and revenue for the quarter ending June 30, 2023, to increase 11.6% and 2.6% year-over-year to $0.96 and $11.05 billion, respectively. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past six months, the stock has gained 24.5% to close the last trading session at $74.59.
AZN’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #8 out of 166 stocks in the Medical – Pharmaceuticals industry. It has an A grade for Sentiment and a B for Growth, Stability, and Quality. Click here to see the other ratings of AZN for Value and Momentum.
McDonald's Corporation (MCD)
Renowned fast-food franchise MCD operates and franchises McDonald’s restaurants. Its restaurants are known for their hamburgers and cheeseburgers, chicken sandwiches and nuggets, wraps, and fries, among other items.
On December 14, 2022, MCD and all five members of the restaurant chain's North American Logistics Council (NALC) signed agreements with Enel North America to purchase renewable energy and the associated renewable energy certificates (RECs) from Enel Green Power's Blue Jay solar project. This should help MCD achieve its sustainability goals.
SVP and Chief Supply Chain Officer, North America, at MCD, Bob Stewart, said, "Adding Blue Jay solar to our U.S. renewable energy portfolio is one of the many important steps in our journey to achieving our net zero aspirations. This deal is a unique example of how McDonald's and its logistics partners combine efforts to leverage their reach and scale to tackle supply chain emissions together."
Over the last three years, MCD’s dividend payouts have grown at a 6.4% CAGR. Its four-year average dividend yield is 2.25%, and its forward annual dividend of $6.08 per share translates to a 2.06% yield. It paid a quarterly dividend of $1.52 per share on March 15, 2023.
In terms of the trailing-12-month EBIT margin, MCD’s 45.41% is 489.4% higher than the 7.70% industry average. Its 57.53% trailing-12-month gross profit margin is 63.3% higher than the industry average of 35.23%. Likewise, its 22.75% trailing-12-month levered FCF margin is significantly higher than the industry average of 2.80%.
For the first quarter ended March 31, 2023, MCD’s revenues increased 4% year-over-year to $5.90 billion. Its non-GAAP net income rose 13.5% over the prior-year quarter to $1.94 billion. Also, its non-GAAP EPS came in at $2.63, representing an increase of 15.4% year-over-year. The company’s operating income increased 9.5% year-over-year to $2.53 billion.
For the quarter ending June 30, 2023, MCD’s EPS and revenue are expected to increase 8.5% and 9.3% year-over-year to $2.77 and $6.25 billion, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 20.1% to close the last trading session at $295.22.
MCD’s POWR Ratings reflect this positive outlook. MCD has an overall rating of B, which translates to a Buy in our proprietary rating system.
Within the A-rated Restaurants industry, it is ranked #5 out of 46 stocks. It has an A grade for Sentiment and Quality and a B for Growth, Momentum, and Stability. To see MCD’s rating for Value, click here.
Flowers Foods, Inc. (FLO)
FLO produces and markets packaged bakery products in the United States. It offers fresh bread, buns, rolls, snack cakes, tortillas, frozen bread, and rolls under the Nature’s Own, Dave’s Killer Bread, Wonder, Canyon Bakehouse, Mrs. Freshley’s, and Tastykake brand names.
On February 20, 2023, FLO announced that it completed the acquisition of Papa Pita Bakery. FLO’s President and CEO said, “Papa Pita has been an important co-manufacturer of Flowers products for many years, and we expect the acquisition to drive further manufacturing and distribution synergies.”
Over the last three years, FLO’s dividend payouts have grown at a 5% CAGR. Its four-year average dividend yield is 3.29%, and its forward annual dividend of $0.88 per share translates to a 3.12% yield.
In terms of the trailing-12-month net income margin, FLO’s 4.75% is 48.3% higher than the 3.20% industry average. Its 47.94% trailing-12-month gross profit margin is 52% higher than the industry average of 31.54%. Likewise, its 3.52% trailing-12-month Capex/Sales is 11.5% higher than the industry average of 3.16%.
For the quarter ended December 31, 2022, FLO’s sales increased 10.1% year-over-year to $1.08 billion. Its income from operations increased 19.2% over the prior-year quarter to $64.09 million. The company’s adjusted net income increased 14.9% year-over-year to $48.12 million.
Also, its adjusted EPS came in at $0.23, representing an increase of 15% year-over-year. In addition, its adjusted EBITDA increased 8.5% over the prior-year quarter to $96.18 million.
Analysts expect FLO’s revenue for the quarter ended March 31, 2023, to increase 7.8% year-over-year to $1.55 billion. Its EPS for fiscal 2024 is expected to increase 8.4% year-over-year to $1.36. It surpassed consensus EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 7% to close the last trading session at $28.24.
FLO’s POWR Ratings reflect solid prospects. The company has an overall rating of B, which translates to a Buy in our proprietary rating system.
It is ranked #16 out of 79 stocks in the B-rated Food Makers industry. It has a B grade for Quality. Click here to see the additional ratings of FLO for Growth, Value, Momentum, Stability, and Sentiment.
What To Do Next?
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AZN shares were trading at $74.57 per share on Thursday morning, down $0.02 (-0.03%). Year-to-date, AZN has gained 11.55%, versus a 6.82% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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