Credit Suisse's 11 Consumer Stocks Most Exposed to 'Healthy Living' Trend

Which stocks will continue to benefit from the global shift by consumers to live more healthy lifestyles?

Credit Suisse said its Healthy Living portfolio offers high quality returns with an average growth of 8% over the last 10 years. Additionally a "6% sales growth at sustained margins is priced in to all the stocks" within the portfolio. Stocks that have at least a "high, single-digit sales growth to 8.5%," along with "sustained margins at 14%," would warrant a 20% upside, in our view," the November 13 report said.

TheStreet highlighted only stocks in the Credit Suisse portfolio that are traded in the U.S., adding ratings from TheStreet ratings for another perspective on the stocks. Check out the list.

TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.

Buying an S&P 500 stock that TheStreet Ratings rated a "buy" yielded a 16.56% return in 2014 beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a "buy" yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.

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1. Nike Inc. (NKE)
Industry: Consumer Goods & Services/Footwear

12-Month Revenue Growth: 7.71%
12-Month Net Income Growth: 21.34%
12-Month EPS Growth: 23.05%

NIKE, Inc., together with its subsidiaries, designs, develops, markets, and sells athletic footwear, apparel, equipment, and accessories for men, women, and kids worldwide.

Credit Suisse Rating/Target Price: Outperform, $126
Exposure to Healthy Living Trend: 100%
Credit Suisse Said: Operationally, the business has developed a highly efficient marketing mechanism that spends over $3 billion a year to reinforce both the potential of sports as a lifestyle and Nike's role at the center of that lifestyle. This has allowed Nike to both build relevance for sports across geographies and capture market share from weaker players.

Ultimately, we believe that Nike will continue to capture market share at an elevated rate globally, positioning the company for a continuation of double-digit revenue growth. When combined with benefits from margin capture as sales shift to owned retail channels and price competition is alleviated across geographies, the company looks set to sustain mid-teens or better earnings growth for the next several years.

TheStreet Said: TheStreet Ratings team rates NIKE INC as a Buy with a ratings score of A+. TheStreet Ratings Team has this to say about their recommendation:

We rate NIKE INC (NKE) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, impressive record of earnings per share growth, compelling growth in net income, revenue growth and largely solid financial position with reasonable debt levels by most measures. We feel its strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 39.26% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, NKE should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • NIKE INC has improved earnings per share by 22.9% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, NIKE INC increased its bottom line by earning $3.70 versus $2.98 in the prior year. This year, the market expects an improvement in earnings ($4.31 versus $3.70).
  • The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Textiles, Apparel & Luxury Goods industry average. The net income increased by 22.6% when compared to the same quarter one year prior, going from $962.00 million to $1,179.00 million.
  • NKE's revenue growth trails the industry average of 15.9%. Since the same quarter one year prior, revenues slightly increased by 5.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • NKE's debt-to-equity ratio is very low at 0.09 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, NKE has a quick ratio of 1.69, which demonstrates the ability of the company to cover short-term liquidity needs.
  • You can view the full analysis from the report here: NKE

 

 

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2. VF Corp. (VFC)
Industry: Consumer Goods & Services/Apparel, Accessories & Luxury Goods

12-Month Revenue Growth: 4.58%
12-Month Net Income Growth: -19.46%
12-Month EPS Growth: -17.41%

V.F. Corporation designs, manufactures, markets, and distributes branded lifestyle apparel, footwear, and accessories in the United States and Europe.

Credit Suisse Rating/Target Price: Neutral, $69
Exposure to Healthy Living Trend: 66%
Credit Suisse Said: We are compelled by the strength of the VF brand portfolio, and believe that there is value to be unlocked in the company's core outdoor and action sports brands in international markets. Ultimately we believe that VF Corp. has invested appropriately in the brand identifies that will be increasingly in favor with the rise of healthy lifestyles across The North Face (outdoor athletics), Vans (street action sports) and Timberland (casual outdoor pursuits).

We see ample opportunity for VF to drive mid-to-high single digit annual revenue growth and double-digit earnings growth over the next five years. In our view, the baseline VF stable of outdoor and action brands helps reduce fashion risk, lowers reliance on any one sales channel, demographic, or region, and subsequently provides downside protection in periods of demand volatility.

TheStreet Said: TheStreet Ratings team rates VF CORP as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

We rate VF CORP (VFC) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels, increase in stock price during the past year, expanding profit margins and largely solid financial position with reasonable debt levels by most measures. We feel its strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • VFC's revenue growth trails the industry average of 15.9%. Since the same quarter one year prior, revenues slightly increased by 2.6%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • After a year of stock price fluctuations, the net result is that VFC's price has not changed very much. Although its weak earnings growth may have played a role in this flat result, don't lose sight of the fact that the performance of the overall market, as measured by the S&P 500 Index, was essentially similar. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • 49.77% is the gross profit margin for VF CORP which we consider to be strong. Regardless of VFC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 12.72% trails the industry average.
  • VF CORP reported flat earnings per share in the most recent quarter. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, VF CORP reported lower earnings of $2.39 versus $2.71 in the prior year. This year, the market expects an improvement in earnings ($3.18 versus $2.39).
  • You can view the full analysis from the report here: VFC

 

 

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3. Under Armour Inc. (UA)
Industry: Consumer Goods & Services/Apparel, Accessories & Luxury Goods

12-Month Revenue Growth: 28.40%
12-Month Net Income Growth: 16.35%
12-Month EPS Growth: 14.79%

Under Armour, Inc., together with its subsidiaries, develops, markets, and distributes branded performance apparel, footwear, and accessories for men, women, and youth primarily in North America, Europe, the Middle East, Africa, the Asia-Pacific, and Latin America.

Credit Suisse Rating/Target Price: Neutral, $74
Exposure to Healthy Living Trend: 100%
Credit Suisse Said: The company has supported an aggressive marketing focus on core and youth athletes that has built a loyal customer base and allowed the core company to expand from its core apparel business (76% of sales) into footwear (15%) and equipment (9%). With scale across products and marketing, the company is now establishing footprints in international geographies (11% of sales).

We remain neutral because of concerns about: 1) limited flow through to the bottom line; 2) an increased lack of capital discipline that is eroding returns and 3) an unprecedented multiple for the stock.

TheStreet Said: TheStreet Ratings team rates UNDER ARMOUR INC as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:

We rate UNDER ARMOUR INC (UA) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, growth in earnings per share, increase in net income, solid stock price performance and expanding profit margins. We feel its strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 15.9%. Since the same quarter one year prior, revenues rose by 28.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • UNDER ARMOUR INC has improved earnings per share by 9.8% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, UNDER ARMOUR INC increased its bottom line by earning $0.95 versus $0.75 in the prior year. This year, the market expects an improvement in earnings ($1.05 versus $0.95).
  • The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Textiles, Apparel & Luxury Goods industry average. The net income increased by 12.8% when compared to the same quarter one year prior, going from $89.11 million to $100.48 million.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 49.46% over the past year, a rise that has exceeded that of the S&P 500 Index. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
  • The gross profit margin for UNDER ARMOUR INC is rather high; currently it is at 50.93%. Regardless of UA's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 8.34% trails the industry average.
  • You can view the full analysis from the report here: UA

 

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4. Lululemon Athletica Inc. (LULU)
Industry: Consumer Goods & Services/Apparel, Accessories & Luxury Goods

12-Month Revenue Growth: 13.25%
12-Month Net Income Growth: 9.54%
12-Month EPS Growth: 13.25%

Lululemon Athletica Inc., together with its subsidiaries, designs, manufactures, and distributes athletic apparel and accessories for women, men, and female youth. It operates through two segments, Corporate-Owned Stores and Direct to Consumer.

Credit Suisse Rating/Target Price: Outperform, $64
Exposure to Healthy Living Trend: 100%
Credit Suisse Said: Lululemon is the originator of the fast-growing athleisure apparel category in North America. It has taken a differentiated, customer-first approach to building its brand and created one of the largest specialty retailers for athletic product in North America, generating $2 billion in retail revenue from a network of 350-plus retail stores.

Underlying the success of the brand has been a focus on proprietary fabrics and very high quality manufacturing techniques, positioning the brand at the near-luxury end of the athletic spectrum, with price points 20-40% above traditional athletic brands. This has supposed industry-leading store productivity (sales per square foot of over $1500 versus apparel industry averages of $500) supported entirely by word-of-mouth marketing. This marketing approach, which is focused on creating tight links to local fitness and athletic communities, has created a loyal customer base that has effectively fended off increasing availability of competitor products.

TheStreet Said: TheStreet Ratings team rates LULULEMON ATHLETICA INC as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

We rate LULULEMON ATHLETICA INC (LULU) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and notable return on equity. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income and weak operating cash flow.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • LULU's revenue growth has slightly outpaced the industry average of 15.9%. Since the same quarter one year prior, revenues rose by 15.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • LULU has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 3.74, which clearly demonstrates the ability to cover short-term cash needs.
  • The gross profit margin for LULULEMON ATHLETICA INC is rather high; currently it is at 50.49%. Regardless of LULU's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 10.52% trails the industry average.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed compared to the Textiles, Apparel & Luxury Goods industry average, but is greater than that of the S&P 500. The net income has decreased by 2.2% when compared to the same quarter one year ago, dropping from $48.75 million to $47.67 million.
  • Net operating cash flow has significantly decreased to $11.22 million or 78.83% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • You can view the full analysis from the report here: LULU

 

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5. Gildan Activewear Inc. (GIL)
Industry: Consumer Goods & Services/Apparel, Accessories & Luxury Goods

12-Month Revenue Growth: 5.81%
12-Month Net Income Growth: -29%
12-Month EPS Growth: -28.42%

Gildan Activewear Inc. manufactures and sells apparel products in the United States, Canada, Europe, the Asia-Pacific, and Latin America. . It operates in two segments, Printwear and Branded Apparel.

Credit Suisse Rating/Target Price: Outperform, U.S. $35.32
Exposure to Healthy Living Trend: 66%
Credit Suisse Said: (The company will benefit from the long-term shift toward healthy living) due to GIL's activewear apparel as well as the company's licensing arrangements with Under Armour and New Balance brands.

GIL is a play on retailer-enhanced profitability of the basics and activewear categories. We believe the Gildan brand could potentially more than double its business in the men's underwear category alone. The strong cash generation of the low-to-mid single-digit growth printwear segment should more than help support GIL's investments in branded. GIL is also a long-term play on leveraging consolidation in apparel: A "house of brands" strategy to attract new customers and to leverage its platform may be in its formative years at GIL (Mossy Oak, Gold Toe, Secret). GIL's under-utilized balance sheet and low-cost facilities support such a strategy. Albeit, we have low visibility on targeted brands/businesses.

TheStreet Said: TheStreet Ratings team rates GILDAN ACTIVEWEAR INC as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

We rate GILDAN ACTIVEWEAR INC (GIL) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels and good cash flow from operations. We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • GIL's revenue growth trails the industry average of 15.9%. Since the same quarter one year prior, revenues slightly increased by 2.9%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Although GIL's debt-to-equity ratio of 0.29 is very low, it is currently higher than that of the industry average. To add to this, GIL has a quick ratio of 1.80, which demonstrates the ability of the company to cover short-term liquidity needs.
  • Net operating cash flow has slightly increased to $85.21 million or 1.04% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -24.28%.
  • GILDAN ACTIVEWEAR INC's earnings per share declined by 12.8% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, GILDAN ACTIVEWEAR INC increased its bottom line by earning $1.46 versus $1.31 in the prior year. This year, the market expects an improvement in earnings ($1.50 versus $1.46).
  • You can view the full analysis from the report here: GIL

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6. Vail Resorts Inc. (MTN)
Industry: Consumer Goods & Services/Leisure Facilities

12-Month Revenue Growth: 11.57%
12-Month Net Income Growth: 302.95%
12-Month EPS Growth: 350%

Vail Resorts, Inc., through its subsidiaries, operates mountain resorts and urban ski areas in the United States. The company operates through three segments: Mountain, Lodging, and Real Estate.

Credit Suisse Rating/Target Price: Outperform, $130
Exposure to Healthy Living Trend: 87%
Credit Suisse Said: MTN would be able to driver more skier visits at its resorts if there were a global shift towards a more healthy lifestyle, as more individuals would opt to spend their extra time and vacations undertaking activities like skiing.

MTN is best-in-class operator, with a runway for pricing and skier visit growth at its existing resorts. MTN should continue to outperform peers given its robust pricing power, synergies associated with the PCMR/Canyons transaction, and potential upside from a normalized skier growth at its Lake Tahoe operations. Further, we believe its Perisher acquisition will help MTN to expand its global reach and increase visitation at its Colorado resorts, as the company will now be able to market directly to the almost 1 million Australian outbound skier visits annually.

TheStreet Said: TheStreet Ratings team rates VAIL RESORTS INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

We rate VAIL RESORTS INC (MTN) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, increase in net income, notable return on equity and solid stock price performance. We feel its strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 1.5%. Since the same quarter one year prior, revenues rose by 19.6%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • VAIL RESORTS INC has improved earnings per share by 7.7% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. During the past fiscal year, VAIL RESORTS INC increased its bottom line by earning $2.97 versus $0.66 in the prior year. This year, the market expects an improvement in earnings ($3.58 versus $2.97).
  • The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Hotels, Restaurants & Leisure industry average. The net income increased by 6.9% when compared to the same quarter one year prior, going from -$75.36 million to -$70.14 million.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market on the basis of return on equity, VAIL RESORTS INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 34.55% over the past year, a rise that has exceeded that of the S&P 500 Index. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
  • You can view the full analysis from the report here: MTN

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7. Planet Fitness (PLNT)
Industry: Consumer Goods & Services/Leisure Facilities

Planet Fitness is an American franchise of fitness centers based in Newington, N.H. Each gym features exercise equipment and fitness instructors to assist its members.

Credit Suisse Rating/Target Price: Outperform, $19
Exposure to Healthy Living Trend: 100%
Credit Suisse Said: PLNT has been a direct beneficiary of the shift to a healthy lifestyle. PLNT caters to the 80% of the population who do not belong to a gym, which allows it to capture much of the incremental participation in gym memberships. In addition, it is one of the only players in the space that offers consumers a low price point (approximately $10), which allows it to target the non-gym goers more effectively.

PLNT is an exceptional growth story, blending best-in-class franchise model with a differentiated consumer proposition that supports double-digit store growth, approximately 10% top-line growth and 20%+ earnings growth, PLNT operates in a healthy industry backdrop (mid-single digit consumer demand growth) and growing awareness supports member/store growth and ASP increases (trading up). We also believe PLNT's differentiated model aligns well with consumer preferences, including its low price point, convenient locations and experience.

TheStreet Said: no rating available

 

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8. Foot Locker Inc. (FL)
Industry: Consumer Goods & Services/Apparel Retail

12-Month Revenue Growth: 4.78%
12-Month Net Income Growth: 18.78%
12-Month EPS Growth: 22.22%

Foot Locker, Inc. operates as an athletic shoes and apparel retailer. The company operates in two segments, Athletic Stores and Direct-to-Customers.

Credit Suisse Rating/Target Price: Neutral, $70
Exposure to Healthy Living Trend: 100%
Credit Suisse Said: As consumers engage in more outdoor/active activities, the demand for high performance shoes and apparel should increase. FL is one of NKE and UA's most important customers and its premium assortment puts it in an exceptional position.

FL remains one of the best positioned retailers to benefit from healthy demand for premium athletic footwear. The company has been able to generate strong double-digit same store sales growth. However, our neutral rating on the stock reflects FL's dependence on NKE, as well as top line growth supported in a significant way by pricing growth.

TheStreet Said: TheStreet Ratings team rates FOOT LOCKER INC as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:

We rate FOOT LOCKER INC (FL) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, impressive record of earnings per share growth, compelling growth in net income, revenue growth and largely solid financial position with reasonable debt levels by most measures. We feel its strengths outweigh the fact that the company shows low profit margins.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Powered by its strong earnings growth of 33.33% and other important driving factors, this stock has surged by 30.82% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, FL should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • FOOT LOCKER INC has improved earnings per share by 33.3% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, FOOT LOCKER INC increased its bottom line by earning $3.56 versus $2.85 in the prior year. This year, the market expects an improvement in earnings ($4.20 versus $3.56).
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Specialty Retail industry average. The net income increased by 29.3% when compared to the same quarter one year prior, rising from $92.00 million to $119.00 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 9.1%. Since the same quarter one year prior, revenues slightly increased by 3.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • FL's debt-to-equity ratio is very low at 0.05 and is currently below that of the industry average, implying that there has been very successful management of debt levels.
  • You can view the full analysis from the report here: FL

 

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9. Dick's Sporting Goods Inc. (DKS)
Industry: Consumer Goods & Services/Specialty Stores

12-Month Revenue Growth: 9.25%
12-Month Net Income Growth: 9.40%
12-Month EPS Growth: 13.58%

Dick's Sporting Goods, Inc. operates as a sporting goods retailer primarily in the eastern United States. The company provides hardlines, including sporting goods equipment, fitness equipment, golf equipment, and hunting and fishing gear products; apparel; and footwear products and accessories.

Credit Suisse Rating/Target Price: Neutral, $49
Exposure to Healthy Living Trend: 99%
Credit Suisse Said: Thus far, DKS has been a beneficiary of the shift towards a healthier lifestyle, which has helped it achieve mid-single digit comps within its core sporting goods business. Though recent results have been weighed down by a structural decline in golf and difficult compares in hunting post-firearms surge, we believe DKS has a best-in-class assortment of athletic apparel and sporting goods, which should help drive consistent comps going forward. Future success depends on DKS' ability to maintain a differentiated assortment of top brands, to compete against vendors' direct distribution and other channels.

DKS has the potential to offer double-digit earnings growth in the out years but patience may be needed. We believe DKS is a strong brand and it is taking some positive steps to build out a profitable omni-channel business, one that can offer significant EPS upside over time as it rolls off the GSI platform. The stock offers value if one can gain confidences in a 2017 inflection, but confirmation of that may still take multiple quarters.

TheStreet Said: TheStreet Ratings team rates DICKS SPORTING GOODS INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

We rate DICKS SPORTING GOODS INC (DKS) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, increase in net income, revenue growth, reasonable valuation levels and good cash flow from operations. We feel its strengths outweigh the fact that the company shows low profit margins.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • DICKS SPORTING GOODS INC has improved earnings per share by 35.1% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, DICKS SPORTING GOODS INC increased its bottom line by earning $2.85 versus $2.70 in the prior year. This year, the market expects an improvement in earnings ($3.20 versus $2.85).
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Specialty Retail industry average. The net income increased by 30.8% when compared to the same quarter one year prior, rising from $69.47 million to $90.84 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 9.1%. Since the same quarter one year prior, revenues slightly increased by 7.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Net operating cash flow has increased to $167.53 million or 21.14% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -10.88%.
  • You can view the full analysis from the report here: DKS

 

 

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10. Hormel Foods Corp. (HRL)
Industry: Consumer Non-Discretionary/Packaged Foods & Meats

12-Month Revenue Growth: 3.42%
12-Month Net Income Growth: 13.82%
12-Month EPS Growth: 13.76%

Hormel Foods Corporation produces and markets various meat and food products worldwide. The company operates in five segments: Grocery Products, Refrigerated Foods, Jennie-O Turkey Store, Specialty Foods, and International & Other.

Credit Suisse Rating/Target Price: Neutral, $66
Exposure to Healthy Living Trend: 70%
Credit Suisse Said: Hormel is capitalizing on the shift in U.S. diets toward higher protein and lower carbohydrates. These trends started to gain momentum when the Atkins diet became popular. It has re-accelerated in recent years when a number of best-selling books discussed the position taken by the U.S. Department of Agriculture regarding the dangers of red meat consumption and the promotion of bread consumption in support of U.S. grain farmers. As the market leader in developing value-added convenient packaged protein products, Hormel has outpaced the growth of the food industry.

Hormel is at the very top of the companies in our space in terms of its track record for delivering shareholder returns, the quality of the management team, and its sustainable, balanced business model. We believe it can continue to growth EPS at an average annual pace of 10% by shifting its product mix to more value-added items and by building its scale in protein with more acquisitions.

TheStreet Said: TheStreet Ratings team rates HORMEL FOODS CORP as a Buy with a ratings score of A+. TheStreet Ratings Team has this to say about their recommendation:

We rate HORMEL FOODS CORP (HRL) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, good cash flow from operations, largely solid financial position with reasonable debt levels by most measures, notable return on equity and solid stock price performance. We feel its strengths outweigh the fact that the company shows low profit margins.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • HORMEL FOODS CORP has improved earnings per share by 5.9% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, HORMEL FOODS CORP increased its bottom line by earning $2.23 versus $1.94 in the prior year. This year, the market expects an improvement in earnings ($2.61 versus $2.23).
  • Net operating cash flow has significantly increased by 104.89% to $244.51 million when compared to the same quarter last year. In addition, HORMEL FOODS CORP has also vastly surpassed the industry average cash flow growth rate of -33.08%.
  • HRL's debt-to-equity ratio is very low at 0.15 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.73 is somewhat weak and could be cause for future problems.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Food Products industry and the overall market on the basis of return on equity, HORMEL FOODS CORP has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • The stock has not only risen over the past year, it has done so at a faster pace than the S&P 500, reflecting the earnings growth and other positive factors similar to those we have cited here. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • You can view the full analysis from the report here: HRL

 

WFM Chart WFM data by YCharts

11. Whole Foods Market Inc. (WFM)
Industry: Consumer Non-Discretionary/Food Retail

12-Month Revenue Growth: 8.41%
12-Month Net Income Growth: -7.43%
12-Month EPS Growth: -4.49%

Whole Foods Market, Inc. operates as a retailer of natural and organic foods.

Credit Suisse Rating/Target Price: Neutral, $27
Exposure to Healthy Living Trend: 85%
Credit Suisse Said: As the largest retailer of natural and organic food products in the U.S. and the 7th largest public food retailer overall, Whole Foods Market is widely known for bringing its healthy food offering to the mainstream mass-market consumer. The company prides itself on actively promoting the benefits of a "wholesome" diet, with a mission to "promote the vitality and well-being of all individuals by supplying the highest quality, most wholesome foods available."

The investment case for WFM has become more challenging and we rate the stock neutral. While the company is highly leverages to the trend toward healthy living, competition within natural/organic food retailer has intensified. Despite its early success, WFM now is plagued by structural concerns around the company's premium price position in an industry where others are providing better value. Ultimately, we believe management may be forced to invest in price faster than it would like and cut back on its growth target in its core concept (1,200 stores in the U.S.). Though it recently introduced second format, 365 by Whole Food market, is a value concept, it is still unproven and creates further uncertainty surrounding the company's overall strategy.

TheStreet Said: TheStreet Ratings team rates WHOLE FOODS MARKET INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

We rate WHOLE FOODS MARKET INC (WFM) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and weak operating cash flow.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • WFM's revenue growth has slightly outpaced the industry average of 3.5%. Since the same quarter one year prior, revenues slightly increased by 5.6%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • WFM's debt-to-equity ratio is very low at 0.02 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Despite the fact that WFM's debt-to-equity ratio is low, the quick ratio, which is currently 0.59, displays a potential problem in covering short-term cash needs.
  • 37.64% is the gross profit margin for WHOLE FOODS MARKET INC which we consider to be strong. Regardless of WFM's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 1.65% trails the industry average.
  • Net operating cash flow has decreased to $132.00 million or 42.35% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • The share price of WHOLE FOODS MARKET INC has not done very well: it is down 24.71% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock.
  • You can view the full analysis from the report here: WFM

 

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