Thanksgiving feasts will likely draw larger crowds than last year and incur higher costs.
A recent Bank of America note detailed which companies have the most exposure to the top holiday dishes amid supply chain bottlenecks, inflation, lingering COVID concerns, low inventories, and evolving consumer behaviors.
Those companies are Campbell's Soup Company (CPB), General Mills (GIS), The Kraft Heinz Company (KHC), Conagra Brands (CAG), Hormel Foods Corporation (HRL), McCormick & Company (MKC), and The Duckhorn Portfolio, Inc. (NAPA).
"We looked at companies’ exposure to the top Thanksgiving dishes: turkey, stuffing, dinner rolls, gravy, green bean casserole, potatoes, mac & cheese dessert and wine," the analysts stated. "Overall CPB, GIS, KHC, CAG, MKC, HRL and NAPA are the most exposed. KHC and NAPA are our favorite stocks in this group."
Thanksgiving 'center of the plate' items see more pricing power
People appear to be gathering around the table again, the analysts stated, as data from social media conversations found mentions of "vaccines" on the rise while mentions of "FaceTime," "social distancing," and "canceled" declined. ("Friendsgiving" and "day drinking" also saw increases.)
And whether consumers opt for turkey or ham, mashed potatoes or marshmallow-topped sweet potatoes, traditional or plant-based options, they're likely to pay more with inflation hitting food prices.
The American Farm Bureau Thanksgiving cost index projects a 14% year-over-year increase for 2021, led by a 24% increase in turkey prices.
“When you look at more of the center of the plate sort of food items, typically, there has not historically been a lot of pricing power,” Bryan Spillane, a senior food and beverage analyst at BofA Global Research, told Yahoo Finance Live (video above). “But what's unusual this year is that there has been. Food companies, in particular, began raising prices the middle of the year, and there's virtually been no elasticity.”
That said, Spillane added, consumer behavior is expected to change at some point.
“Something that we're really watching as we move into next year is: At what point does the consumer begin to push back and do we begin to see some trading down or other behavior that demonstrates that consumers are feeling that pinch?” Spillane said.
Investor appetite for food and beverage companies
The top company with the most upside or downside potential is Campbell's, which BofA gave an "underperform" rating.
“Campbell's struggling from a few issues,” Spillane said. “One is they are experiencing a material amount of inflation. They have a product portfolio that's a little bit more skewed… to kind of middle and low-income households. So, that's, maybe, an area where there may be some sensitivity around passing those prices through.”
The iconic soup company also has a lot of direct and indirect exposure to labor shortages and higher labor costs, Spillane added.
BofA also gave seasoning-maker McCormick & Company an "underperform" rating, with an $84 price target.
McCormick is “still trading at a premium valuation,” Spillane said, adding that while it has benefitted from people having cooked at home more in the last 18 months, “at some point, as things moderate, you're going to see less of that cooking at home behavior. And that's going to create an overhang for McCormick.”
On the flip side, “Hershey [HSY] is well-positioned,” Spillane said, especially when it comes to the inflationary environment.
“The combination of a category that's still growing very strongly where there's still a lot of product innovation and where there's been demonstrated pricing power, we think that Hershey is set up really well to be able to maybe even more than protect margins, maybe potentially grow margins as we cycle through some of this inflation,” he explained.
BofA also awarded Stove Top stuffing-maker Kraft Heinz a buy rating with a $46 price objective.
“We believe this is justified based our view that KHC is well positioned to capture growth associated with changing consumer demand patterns related to recessions and pantry stocking offset by higher than average debt levels,” the analysts wrote.
Grace is an assistant editor for Yahoo Finance.