Inflation eased for the sixth consecutive month in December, as the Consumer Price Index (CPI) increased by 6.5% over last year and decreased 0.1% sequentially. However, the U.S. economy added 517,000 jobs in January, significantly higher than the Dow Jones estimate of 187,000.
The central bank still sees the need for ongoing increases in the target range. Moreover, Fed Chairman Jerome Powell warned that if the U.S. job market strengthens further in the upcoming months or inflation rises, the central bank might have to raise its benchmark rates higher than its projection.
Amid this uncertainty, the economy and the stock market are expected to remain under pressure. In this scenario, investing in blue-chip companies could offer a safe haven to investors as they are well-established names with stable profit margins and are less affected by market volatility.
To that end, investors might add fundamentally strong blue-chip stocks PepsiCo, Inc. (PEP) and Altria Group, Inc. (MO) to their watchlist.
PepsiCo, Inc. (PEP)
PEP manufactures, markets, distributes, and sells various beverages and convenient foods worldwide. The company operates through seven segments: Frito-Lay North America; Quaker Foods North America; PepsiCo Beverages North America; Latin America; Europe; Africa, Middle East, and South Asia; and Asia Pacific, Australia and New Zealand and China Region.
PEP is expected to pay a quarterly dividend of $1.15 per share on March 31, 2023. The company’s four-year average dividend yield is 2.77%, and its current forward dividend of $4.60 translates to a 2.69% yield on prevailing prices. Its dividends have grown at a 6.1% CAGR over the past three years. Over the past five years, PEP’s dividend payouts have grown at a 7.4% CAGR.
In terms of the trailing-12-month net income margin, PEP’s 11.61% is 252% higher than the 3.30% industry average. Likewise, its 18.12% trailing-12-month EBITDA margin is 65.1% higher than the industry average of 10.98%. Furthermore, the stock’s 5.86% trailing-12-month Capex/Sales is 81.2% higher than the industry average of 3.24%.
For the fiscal fourth quarter that ended December 31, 2022, PEP’s net revenue increased 10.9% year-over-year to $28 billion. The company’s non-GAAP gross profit increased 11.5% from the year-ago period to $14.71 billion, while its non-GAAP operating profit increased 6.9% year-over-year to $2.93 billion.
Non-GAAP net income attributable to PEP increased 8.5% year-over-year to $2.31 billion. In addition, its adjusted EPS came in at $1.67, representing a 9.2% increase from the prior-year quarter.
Analysts expect PEP’s EPS and revenue for the quarter ending March 31, 2023, to increase 7.4% and 3.6% year-over-year to $1.39 and $16.78 billion, respectively. It has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
Over the past nine months, the stock has increased marginally to close the last trading session at $171.16.
PEP’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #8 out of 37 stocks in the B-rated Beverages industry. It has an A grade for Quality and a B for Growth, Stability, and Sentiment.
We have also given PEP grades for Value and Momentum. Get all PEP ratings here.
Altria Group, Inc. (MO)
MO manufactures and sells smokeable and oral tobacco products in the United States. The company provides cigarettes, cigars, pipe tobacco, moist smokeless tobacco products, and oral nicotine pouches.
On October 27, 2022, MO announced a strategic partnership with the JT Group. MO’s CEO, Billy Gifford, believes this relationship can accelerate harm reduction for adult smokers across the globe through a pipeline of heated tobacco products. The joint venture positions the company well to increase the adoption of smoke-free products.
MO paid a quarterly dividend of $0.94 per share on January 10, 2023. The company’s four-year average dividend yield is 7.45%, and its current forward dividend of $3.76 translates to an 8.09% yield on current prices. Its dividends have grown at a 3.9% CAGR over the past three years. Over the past five years, MO’s dividend payouts have grown at a 7.7% CAGR.
In terms of the trailing-12-month net income margin, MO’s 68.56% is 117.4% higher than the 31.53% industry average. Likewise, its 58.82% trailing-12-month EBIT margin is significantly higher than the industry average of 7.54%. Furthermore, the stock’s 31.96% trailing-12-month levered FCF margin is considerably higher than the industry average of 2.83%.
MO’s operating income for the fiscal year that ended December 31, 2022, increased 3.1% year-over-year to $2.82 billion. Adjusted net earnings attributable to MO rose 2.6% from the prior-year period to $8.74 billion. In addition, its adjusted EPS came in at $4.84, representing an increase of 5% year-over-year.
Analysts expect MO’s EPS and revenue for the quarter ending March 31, 2023, to increase 5.8% and 2% year-over-year to $1.19 and $4.92 billion, respectively. It has a commendable earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters. Over the past six months, the stock has gained 5.2% to close the last trading session at $46.50.
MO’s promising prospects are reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. Within the A-rated Tobacco industry, it is ranked #3 out of 9 stocks. It has an A grade for Quality.
To see the additional POWR Ratings of MO for Growth, Value, Momentum, Stability, and Sentiment, click here.
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PEP shares were trading at $173.05 per share on Thursday afternoon, up $1.89 (+1.10%). Year-to-date, PEP has declined -4.21%, versus a 7.13% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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