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Proprietary Data Insights Top Consumer Staple Stock Searches in the Last Month
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Why Mondelez is Becoming a Crowd Favorite |
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Consumer staple stocks aren’t sexy. But when you get them at discounts, they can pad your portfolio with some nice profits. When we called out the opportunity in Coca-Cola (KO) in early October, we said the selloff created an opportunity. Today, that stock is up a healthy +5% in a month. That may not sound like much compared to the S&P 500, but it’s pretty solid, given the relative volatility of defensive names. Since then, we’ve been on the lookout for other quality companies trading at a discount. And when search volume amidst a wider investing community spiked in Mondelez International (MDLZ), our Trackstar data lit up like a Christmas Tree. It didn’t take long for us to see why folks searched the name like crazy. Mondelez’s Business Once a part of the Kraft-Heinz empire, Mondelez International split in 2012, taking everything but North American grocery. The company’s snacks and beverage brands include popular names like Oreos, Tang, Ritz, and Cadbury. Revenues are reported by region:
Mondelez’s latest quarterly results demonstrated substantial income growth with Q3 EPS up 84.6% YoY reported and 13.9% against adjusted earnings. As the graphic below highlights, Mondelez saw favorable volume and pricing which more than offset any increase in operational costs.
Source: MDLZ Q3 2023 Investor Presentation Management raised its full-year guidance for 2023 as they expect organic net revenue growth to hit 14%-15% for the year. Financials
Source: Stock Analysis Revenues exploded in the last few years as Mondelez took pricing action to offset inflationary pressure. Yet, as the latest quarterly report noted, organic growth continues to blossom. Although gross margins aren’t as high as before the pandemic, management has cut costs in SG&A to keep operating and profit margins elevated. Equally important, they’ve boosted free cash flow while paying a healthy dividend and buying back shares worth roughly 3.1% annually. However, it’s worth noting operating cash flow was stagnant until this year as divestitures boosted earnings without increasing cash flow. At the same time, they’ve been reducing total debt by roughly 10% to $20 billion over the past couple of years. Valuation
Source: Seeking Alpha Remember in yesterday’s Exxon Mobil writeup how energy companies were trading at less than 10x earnings and cash? Well, these consumer staples trade at 20x, with Walmart as the only outlier trading at 11.8x cash. These are high by historical standards. But, these companies kick out tons of cash, which investors are willing to pay more now. Growth
Source: Seeking Alpha As we noted earlier, Mondelez saw great revenue growth in 2023. Yet, they expect close to 10% sales growth in 2024. That’s nearly 50% higher than all of its peers. Free-cash-flow barely grew in the last three years, which is at odds with the EPS growth. But remember, the divestitures only boosted paper profits. Profitability
Source: Seeking Alpha Modalez’s EBIT margin is in line with Pepsi (PEP), which makes sense since they do snacks and beverages as well, unlike Coca-Cola (KO), which is purely beverage. It’s disappointing to see Mondelez lag in returns on equity, assets, and total capital behind all its peers. However, as they pay down debt, we expect that to improve. Our Opinion 7/10 Mondelez projects substantial growth in revenues and cash flow for the remainder of 2023. Although shares have risen almost 20% from their lows, the stock trades at a relative value given its growth potential. While it’s not a bad spot to initiate a position, we’d prefer to wait for a deeper discount like we saw in October. Or, if you own Coke or Pepsi, consider rebalancing some into Mondelez. |
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