An analyst covering the food industry has suggested that the coronavirus outbreak could turn out to be a net positive for the sector’s stocks.
John Baumgartner, a senior analyst with Wells Fargo Securities, stressed significant uncertainty abounds in terms of the outbreak’s severity and global breadth along with any economic impact but said, from an investment point of view, he notes “multiple potential positives”.
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Increased grocery purchases linked to eating at home are at the core of his argument.
In a note sent to investors and the media he said: “Some parallels exist with the 2008/2009 financial crisis. The event was unique in our view for its broad fall-off in global demand and, given reports of quarantines impacting factories, schools, and cities across the world, some parallels are clear.”
Baumgartner pointed to limited international supply chain risks versus other S&P sectors, potential benefits from pantry stocking and a shift towards US at-home food consumption and potential commodity cost benefits, amongst other things.
He said: “Net, we expect short-term benefits from grocery spending and potential extension of the ‘lower for longer’ commodities price dynamic.”
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By GlobalDataComparing the outlook for different food categories to the financial crisis era, he said: “4Q08-3Q09 volumes outperformed in frozen (snacks, pizza, potatoes) and with some of the best demand elasticities (positive pricing and volume) while some refrigerated categories benefited (bacon, meat, cheese, yogurt) and shelf-stable growth skewed towards cooking ingredients (sauces, baking mixes, pasta).
“Weakest volumes included canned tuna and non-essentials such as frozen juices/yogurt drinks/single-serve desserts. This time around, we would expect some of the canned categories to perform better (soup) under a scenario of isolation.”
