Analyst upgrades have long meant good things for stocks. When an analyst takes an interest in a stock, that serves as a psychological buttressing of support to get investors interested as well. That’s not always the case, of course, but it can certainly help. Just ask Kraft Heinz (NASDAQ:KHC) and JM Smucker (NYSE:SJM), both of which got upgraded after analysts declared new support.
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Bernstein, by way of analyst Alexia Howard, upgraded Smucker from Underperform to Market Perform and Kraft from Market Perform to Outperform. Kraft got a price target of $40, while Smucker got a target of $119. That’s despite the fact that both were facing some growing threats from the array of weight loss drugs hitting the market. However, Howard notes, these threats are likely “overdone.” In fact, the threat of weight loss drugs alone has been enough to cripple several food stocks this year, with the entire sector down around 21% on a year-to-date basis.
KHC, SJM Valuations are Cheap Enough to Outweigh Risks
Howard went on to detail some of the reasoning behind the ratings shifts. For one, Kraft Heinz got its upgrade thanks to its currently cheap valuation, along with its likelihood of doing well even in a weight loss-fueled world thanks to its particular focus on protein. Plus, its overall business model is likely to give it a boost as well. Meanwhile, Smucker got its upgrade thanks also to cheap valuation as well as its “…more balanced risk-reward.” Granted, Smucker’s acquisition of Hostess brands is starting to look like a bad buy, especially these days, but the impact of owning the Twinkie brand is likely baked into current share prices.
What are Good Food Stocks?
Turning to Wall Street, both KHC stock and SJM stock offer upside potential, but there’s a clear winner between the two. KHC stock offers 9.27% upside potential on its $36.65 average price target. However, SJM stock’s $139.64 average price target yields 25.98% upside potential.
