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NEW YORK (TheStreet) -- Moody's said in a report released Wednesday evening that many investment-grade food and consumer product companies are currently in strong financial condition -- after focusing on shoring up liquidity during the economic downturn -- to make strategic deals and "ramp up payments to shareholders."

But these kinds of special events, historically, have led to ratings downgrades in the sector, Moody's warned. During the past 15 years, there have been 53 rating downgrades in the consumer-products sector -- specifically related to special events.

Most have been one-notch downgrades associated with mergers and stock buybacks. But there have been some significant downgrades such as the six-notch downgrade of


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when it acquired Keebler in 2001, Moody's wrote.

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Against this backdrop, Moody's assessed the capacity of certain consumer products companies that historically have been active in acquisitions or that may have strategic reasons for making an acquisition to increase leverage within current ratings.

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The analysis listed


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TheStreet Recommends


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as companies with the most capacity to assume additional debt through mergers and acquisitions within current rating categories while

Fortune Brands

( FO),

Mead Johnson Nutrition



Constellation Brands

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are among those with the least capacity to do so within current rating categories.

Furthermore, the report identified

Leggett & Platt

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Sara Lee

( SLE) and


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as companies with the most capacity to assume additional debt through shareholder payouts within current rating categories.

Avon Products

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Procter & Gamble

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were identified as having the least capacity.

Moody's noted that increased financial flexibility alone does not ensure that a company will make an acquisition or boost shareholder payouts.

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Separately, on Monday,

Goldman Sachs

analysts Judy Hong and Tyler Walling downgraded the packaged food sector to cautious from neutral for reasons consisting of continued, mixed U.S. sales trends -- volume remains sluggish and price promotions are elevated in many categories; risk to margin expectations -- higher grain or packaging costs, combined with an increase in marketing spending, could limit margin gains; and relatively full valuations at a 10% to 15% premium to the broader market and only a moderate discount to the beverage sector

Overall, the analysts have cut their second half 2010 and 2011 earnings per share estimates for the group by roughly 2% on average to reflect a more challenging margin outlook. They've lowered their price targets accordingly.

The Goldman Sachs analysts have downgraded

Campbell Soup

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to sell from neutraL, as they see downside risk to company guidance and consensus estimates for fiscal year 2011 and a growing likelihood that the company will need to rebase earnings if its top line does not improve.

Hong and Walling lowered their 12-month price target on Campbell by $2 to $34 to reflect the potential for these revisions. In a client note, the two warned that a turnaround in soup sales remains "elusive" and that

General Mills'

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Progresso soups brand could begin to "encroach" on Campbell's shelf spaces in the ready-to-serve soup category.

In addition, they foresee growing risk to margin from higher commodities prices and a need to increase spending. Furthermore, they think valuation looks full at 13.2 times calendar year 2011 estimated earnings per share, which is about in-line with food peers despite a muted profit growth outlook.

That said, beverages are still Hong and Walling's favorite sector. They're also "constructive" on tobacco. They believe the beverage sector should benefit from improving top-line trends, rational pricing and strong emerging-markets exposure. At the same time, the tobacco sector also is seeing stable sales trends and continues to be an attractive cash return story with around 6% to 7% dividend yields and share buyback opportunities, the analysts wrote.


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are the Goldman Sachs analysts' top picks across their beverage, food and tobacco coverage list. They have buy ratings on both stocks.

-- Written by Andrea Tse in New York.

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