TD Cowen starts packaged foods sector with cautious outlook

TD Cowen last night initiated coverage on the U.S. packaged foods sector with a cautious outlook and “several below-consensus estimates.” The analyst believes the majority of companies in the group raised prices too high on “structurally challenged brands and now face a formidable cyclical downturn.” The firm sees risk of price discounting, subdued volume growth, and margin pressure over the next 12 months. TD has Outperform ratings on Mondelez (MDLZ), Hershey (HSY), Utz Brands (UTZ), Freshpet (FRPT) and Lamb Weston (LW) citing tailwinds their competitive moats in attractive categories and strong pricing power. The firm calls its Outperform on J.M Smucker (SJM) its “most differentiated stock call.” The analyst’s forecasts are below consensus for Underperform-rated B&G Foods (BGS) and Market Perform-rated Kraft Heinz (KHC), Conagra (CAG), and Kellogg (K) on the belief the companies will need to institute broad price discounts to revive volume. TD put an Underperform rating on Beyond Meat (BYND) saying the “fragility” of the company’s financial situation and the weak consumption patterns in the meat alternatives category “present too much risk.” TD put Market Perform ratings on Campbell Soup (CPB), General Mills (GIS), McCormick (MKC), Treehouse (THS), Hostess Brands (TWNK) and Vital Farms (VITL).