Mondelez, Hostess Brands and Post Holdings are some of the food stock favorites at Evercore ISI
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Food stocks have held up rather well during the recent market sell-off as investors have taken a more defensive positioning, but Evercore ISI is cautious on the sector just ahead of earnings reports.
Analyst David Palmer points to continued gross margin pressure and near-term EPS downside for many names. He notes that companies such as Hain Celestial (HAIN
-1.6%), Conagra Brands (CAG
-0.7%) and General Mills (GIS
-0.9%) have already highlighted higher-than-expected supply chain costs and commodity inflation in the U.S. and select international markets.

Palmer and team anticipate roughly in-line quarters for Hershey (HSY
-2.1%), Mondelez International (MDLZ
-1.1%) and Hostess Brands (TWNK
-1.6%), which are called a triumvirate of sweet snack players that should deliver upside to consensus organic growth and overhead leverage to offset relatively modest gross margin downside. More profit downside is seen for Kellogg's (K
-0.4%), Post Holdings (POST
-4.4%), Kraft Heinz (KHC
-0.7%), BellRing Brands (BRBR
-3.6%), and B&G Foods (BGS
-0.2%).
Looking ahead, Evercore ISI continues to favor companies with sustainable growth prospects like Mondelez International (NASDAQ:MDLZ), Hostess Brands (NASDAQ:TWNK), BellRing (NYSE:BRBR)and Hain Celestial (NASDAQ:HAIN). Among the center store value names, Conagra (NYSE:CAG) and Post Holdings (NYSE:POST) are called the favorites.
The catch-all food sector ETF is the Invesco Exchange-Traded Fund Trust - Invesco Dynamic Food & Beverage ETF (PBJ
-1.8%).
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