Citi launches beverage, personal space with six buys, two sells

Citi analyst Filippo Falorni initiated coverage of 16 companies in the U.S. beverages and household products and personal care space. After a year of "outsized industry-wide price realization with limited elasticity impacts," structural sales growth differences in the group will become more evident with companies offering true pricing power and attractive country/category exposures "re-emerging as relative winners," the analyst tells investors in a research note. City says that while group valuations remain elevated after large outperformance in 2022, there are "compelling single-name opportunities in the space." It tells investors to focus on "high-quality names" that have de-rated on near-term temporary concerns, offer a gross margin improvement story with declining commodity prices and the ability to retain prior pricing. The firm’s top Buy-rated picks are Colgate-Palmolive (CL), Procter & Gamble (PG), Constellation Brands (STZ), Coca-Cola (KO), Monster Beverage (MNST) and Estee Lauder (EL). Citi’s Sell-rated names are Kimberly-Clark (KMB) and Brown-Forman (BF.B). The firm put Neutral ratings on PepsiCo (PEP), Church & Dwight (CHD), Keurig Dr Pepper (KDP), Coty (COTY), Boston Beer (SAM), Clorox (CLX), Molson Coors (TAP) and Newell Brands (NWL). From a pair-trade standpoint, it recommends to overweight Procter & Gamble and underweight Kimberly-Clark, as well as to overweight Colgate-Palmolive, underweight Kimberly-Clark.