Stock Analysis & Ideas

Which Large-Cap Consumer Stock Could Yield Higher Returns?

Story Highlights

Amid a highly uncertain macro backdrop, it is important to pick stocks carefully, taking into consideration companies with strong fundamentals and long-term growth potential. We will discuss three large-cap consumer stocks — a rapidly growing electric vehicle maker, a leading fast-casual restaurant, and a dominant beverage giant. 

Investors are increasingly worried about the economy slipping into a recession. The U.S. Federal Reserve has announced its second consecutive 75 basis points interest rate hike, as part of its efforts to tame inflation. However, the situation continues to be uncertain given multiple macro challenges. Against this backdrop, we used the TipRanks Stock Comparison Tool to place Li Auto, Chipotle Mexican Grill, and Coca-Cola against each other to pick the large-cap stock with higher upside potential.  

Large-cap stocks are ones with a market capitalization of over $10 billion. Generally, many of the large-cap stocks are well-established players in their respective sectors. However, they can also be companies with robust growth potential.

Li Auto (NASDAQ: LI)

Chinese electric vehicle maker Li Auto reported strong deliveries for June, indicating a rebound from the COVID-19-led disruptions in the country. The company delivered 13,024 Li ONE SUVs (sport utility vehicles) in June, up nearly 69% from the prior-year quarter. Overall, Li Auto’s second-quarter deliveries increased 63.2% to 28,687 vehicles. The company is now gearing up to begin deliveries of its newly launched Li L9 six-seat, flagship SUV, by the end of August.  

Last month, Li Auto announced its plans to raise $2 billion through an at-the-market stock offering of its American depositary shares (ADS). The company stated that it intends to use the capital raised through this offering for the research and development of next-generation EV technologies, and working capital requirements.

In reaction to this offering, Morgan Stanley analyst Tim Hsiao stated that investors might be worried that an at-the-market offering could be a near-term overhang on the stock. However, the analyst feels that the stock offering is a “strategic positive.”

Hsiao feels that this additional capital, along with $8 billion of cash and liquid assets on hand, can support the company’s strategic and product goals amid rising fears of an economic slowdown. Hsiao reiterated a Buy rating on Li Auto stock with a price target of $41.

Overall, Li Auto scores a Strong Buy consensus rating based on six unanimous Buys. The average Li Auto price target of $46.50 implies 38.06% upside potential from current levels.

Chipotle Mexican Grill (NYSE: CMG)

Chipotle shares spiked nearly 15% in reaction to the burrito chain’s better-than-anticipated earnings for the second quarter, even as revenue lagged expectations. Revenue grew 17% to $2.2 billion, with comparable restaurant sales up 10.1%.

The top-line growth was impacted by a slowdown in comparable sales in the second half of the quarter due to macro challenges, a relatively new workforce, and a “return to normal summer seasonality for college-based restaurants.”

Meanwhile, adjusted earnings per share (EPS) surged nearly 25% to $9.30, as menu price hikes helped fight higher input costs.

Following the print, RBC Capital analyst Christopher Carril increased his price target on Chipotle stock to $1,825 from $1,800 and reiterated a Buy rating. Carril stated that upbeat Q2 margins led to positive estimate revisions for the rest of the year.

Carril adds that further pricing actions (a planned hike of nearly 4% in August) could spark a discussion among investors. That said, the analyst believes that Chipotle’s ability to sail through the ongoing macro challenges and meet its near-term margin targets are key catalysts for the stock in the second half of this year.

Most of the analysts agree with Carril, with the stock earning a Strong Buy consensus rating based on 21 Buys and four Holds. The average Chipotle price target of $1,754.57 implies 16.20% upside potential from current levels.

Coca-Cola (NYSE: KO)

Beverage giant Coca-Cola delivered stellar second-quarter results, thanks to price hikes and a strong recovery in volumes due to a rise in away-from-home consumption. Revenue grew 12% to $11.3 billion, while adjusted EPS increased 4% to $0.70. Adjusted EPS grew despite the impact of currency headwinds and higher operating costs.

Looking ahead, Coca-Cola raised its full-year organic revenue growth guidance but maintained its adjusted EPS outlook due to higher forex headwinds.

In reaction to the results, RBC Capital analyst Nik Modi noted that the company delivered upbeat revenue and EPS performance, with upside on price and mix, as well as volumes. Modi remains confident about Coca-Cola’s ability to “navigate through challenging macro conditions,” supported by better mobility following the easing of restrictions, strong price and mix realization, and the favorable impact of the company’s reorganization initiatives.

Meanwhile, the Street is cautiously optimistic on Coca-Cola stock, with a Moderate Buy consensus rating based on eight Buys and four Holds. At $69.42, the average Coca-Cola price target implies 10.17% upside potential from current levels.

Conclusion

Stocks of Li Auto and Coca-Cola are up by single digits year-to-date, while Chipotle stock is in the red. Wall Street analysts seem to be highly bullish on Li Auto, as evident in the unanimous Buy ratings for the Chinese EV maker. Also, based on the average price targets, Li Auto has a higher upside potential than Chipotle and Coca-Cola. While both Chipotle and Coca-Cola are well-established players, the sentiment for Li Auto is more optimistic due to the long-term growth potential in the global EV market.

As per the TipRanks Smart Score System, Li Auto scores a “Perfect 10,” indicating that the stock might outperform the broader market.

Disclosure 

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