US stocks fell on Thursday due to concerns over turmoil in the banking sector, with all three indexes closing lower. Amid the macroeconomic headwinds, investing in stocks with strong brand recognition that often command higher prices and enjoy more customer loyalty might be viable.
Hence, I present stocks with solid brand recognition: The Coca-Cola Company (KO), Starbucks Corporation (SBUX), and Chipotle Mexican Grill, Inc. (CMG), which have higher profit margins than their industry peers. Moreover, despite a weak economic outlook, these companies have reported strong earnings in their recent fiscal quarter.
This week, the Federal Reserve approved its 10th interest rate hike in just over a year, raising its benchmark borrowing rate by 0.25 percentage point to a target range of 5%-5.25%, the highest since August 2007.
Although this decision was widely expected by markets, concerns over economic growth and a banking crisis have unsettled Wall Street. Stocks initially rose while Treasury yields were mostly lower after the announcement, but stocks struggled to hold onto the gains due to market volatility.
In addition, House Speaker Kevin McCarthy recently offered a bill to lift the debt ceiling in exchange for cuts to government spending of about 8% next year and a cap on its growth of 1% each year after that.
However, Moody's Analytics chief economist Mark Zandi has warned that this proposal would adversely affect the economy. Zandi testified to the Senate Budget Committee that the proposed reductions could result in the loss of 800,000 jobs by the end of 2024 and raise the jobless rate.
Furthermore, he noted that this plan could reduce economic growth to 1.61% by 2024 and increase the likelihood of a recession.
Take a look at the stocks mentioned above:
The Coca-Cola Company (KO)
Beverage giant KO manufactures, markets, and sells various non-alcoholic beverages. It has a market capitalization of $277.12 billion.
KO’s trailing-12-month EBIT margin of 28.19% is 268.4% higher than the 7.64% industry average. Its 21.04% trailing-12-month levered FCF margin is 614% higher than the industry average of 2.95%. Moreover, the stock’s trailing-12-month net income margin of 22.69% is 608.1% higher than the industry average of 3.20%.
KO announced in its fiscal first quarter that it is collaborating with OpenAI and Bain & Company to leverage ChatGPT and DALL-E to enhance marketing capabilities and business operations through cutting-edge AI.
Within a month of this collaboration, KO launched the "Create Real Magic" platform, which allows consumers to use AI to generate original artwork using creative assets from the Coca-Cola archives. The company is also exploring the use of AI to improve customer service, ordering, and point-of-sale material creation with its bottling partners.
KO’s four-year average dividend yield is 3.03%, and its forward annual dividend of $1.84 per share translates to a yield of 2.89% on the prevailing market price. Over the last three years, KO’s dividend payouts have grown at a CAGR of 3.4%. The company has been raising its dividend payouts for 60 years, which is an incredible feat.
KO’s net operating revenues increased 4.7% year-over-year to $10.98 billion for the fiscal first quarter ending March 31, 2023. Its gross profit increased 4.1% year-over-year to $6.66 billion. The company’s net income rose 11.7% from the previous-year quarter to $3.11 billion and non-GAAP EPS grew 5% year-over-year to $0.68.
Street expects KO’s EPS and revenue for the current quarter ending June 2023 to increase 2.7% and 3.5% year-over-year to $0.72 and $11.70 billion, respectively. The company has a commendable earnings surprise history, surpassing the consensus EPS and revenue estimates in each of the trailing four quarters.
Over the past six months, the stock has gained 7.5% to close the last trading session at $63.72.
KO’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It also has a B grade for Stability, Sentiment, and Quality. Within the A-rated Beverages industry, KO is ranked #15 out of 37 stocks.
Click here to see the additional POWR Ratings of KO for Growth, Value, and Momentum.
Starbucks Corporation (SBUX)
SBUX and its subsidiaries, operate as a roaster, marketer, and retailer of specialty coffee worldwide. The company operates through three segments: North America; International; and Channel Development. Its market cap is $131.55 billion.
SBUX’s trailing-12-month net income and levered FCF margins of 10.46% and 7.16% are 138.9% and 155.3% higher than the 4.38% and 2.80% industry averages. Its trailing-12-month EBIT margin of 14.13% is 83.4% higher than the 7.70% industry average.
On April 20, SBUX announced the launch of an innovative line of coffee beverages called "Oleato" an alchemy of SBUS’s finest arabica coffee infused with Partanna extra virgin olive oil on April 20, 2023, at more than 60 select stores across Japan, including Starbucks Reserve Roastery Tokyo.
The launch of a new coffee line might potentially increase sales and revenue for Starbucks and help differentiate it from competitors.
On April 3, 2023, SBUX declared a quarterly cash dividend of $0.53 per share of outstanding common stock. The dividend will be payable in cash on May 26, 2023.
While SBUX’s four-year average dividend yield is 1.89%, its current annual dividend of $2.12 translates to a yield of 1.99% on the current market price. SBUX has paid dividends for 12 consecutive years. SBUX’s dividend payouts have grown at CAGRs of 9.8% over the past three years and 13.2% over the past five years.
SBUX’s total net revenue increased 14.2% year-over-year to $8.72 billion for the fiscal first quarter that ended April 2, 2023. Its company-operated stores’ revenues grew 13.8% year-over-year to $7.14 billion, while its licensed stores’ revenues came in at $1.07 billion, up 25.9% year-over-year.
Moreover, its non-GAAP operating income rose 25% from the previous-year quarter to $1.25 billion. Net earnings attributable to SBUX grew 34.7% year-over-year to $908.30 million and its non-GAAP EPS increased 25.4% from the previous-year quarter to $0.74.
Analysts expect SBUX’s revenue to increase 14.7% year-over-year to $9.34 billion in the fiscal third quarter ending June 2023. Its EPS is expected to increase 14.6% year-over-year to $0.96 in the same quarter. The company has surpassed the consensus revenue and EPS estimates in three of the trailing four quarters, which is impressive.
Over the past six months, the stock has gained 28.3% to close the last trading session at $104.72.
SBUX’s Strong fundamentals are reflected in its POWR Ratings. The stock’s overall B rating equates to a Buy in our proprietary rating system.
SBUX has a B grade for Momentum, Stability, Sentiment, and Quality. Within the A-rated Restaurants industry, it is ranked #11 of 46 stocks.
To access SBUX ratings for Value and Growth, click here.
Chipotle Mexican Grill, Inc. (CMG)
CMG owns and operates Chipotle Mexican Grill restaurants. It offers burritos, burrito bowls, quesadillas, tacos, and salads. The company has a market of $56.10 billion.
CMG’s trailing-12-month ROCE, ROTC, and ROTA of 44.74%, 14.27%, and 14.64% are higher than the industry average of 11.05%, 6.34%, and 3.89%.
On April 11, 2023, CMG announced a new all-electric restaurant design that maximizes energy efficiency and uses 100% renewable energy from wind and solar power through certified renewable energy credits. The company has already opened restaurants with these features in Virginia and Florida and will open a third location in Colorado later this summer.
This new restaurant design will help Chipotle achieve its science-based targets to reduce greenhouse gas emissions by 50% by 2030 compared to a 2019 baseline.
During the fiscal first quarter that ended March 31, 2023, CMG’s total revenue increased 17.2% year-over-year to $2.37 billion. The company’s income from operations increased 93.3% year-over-year to $367.61 million. Its adjusted net income increased 80.7% year-over-year to $291.64 million.
In addition, its adjusted EPS rose 84.2% year-over-year to $10.50.
CMG’s EPS and revenue for the current quarter ending June 2023, are expected to increase 30.8% and 14.2% year-over-year to $12.16 and $2.53 billion, respectively. It has a remarkable earnings surprise history, surpassing its consensus EPS estimates in three of the trailing four quarters.
The stock has gained 46.6% year-to-date to close the last trading session at $2033.51.
CMG’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
In addition, it has a B grade for Momentum, Sentiment, and Quality. It is ranked #15 in the Restaurant industry.
Beyond what is stated above, we’ve also rated CMG for Growth, Value, and Stability. Get all CMG ratings here.
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KO shares rose $0.02 (+0.03%) in premarket trading Friday. Year-to-date, KO has gained 0.86%, versus a 7.19% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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