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On Tuesday, UBS analyst Charles Eden adjusted the outlook on shares of Kerry Group PLC (KYG:ID) (OTC: KRYAY), downgrading the stock from Buy to Neutral while slightly increasing the price target from EUR105.00 to EUR107.00. The revision reflects a modest uptick in the price target due to foreign exchange-driven earnings per share (EPS) upgrades. According to InvestingPro analysis, the stock is currently trading near its Fair Value, with a P/E ratio of 24.6x.
Kerry Group, with a significant portion of its sales coming from the United States, approximately 39%, is seen as having a defensive position in the market due to its focus on food and beverage products, which account for around 93% of its category exposure. This sector is typically less affected by economic fluctuations, which adds a layer of stability to the company’s outlook. The company’s defensive nature is reflected in its strong financial health, earning a "Good" rating from InvestingPro, with a beta of 0.63 and an impressive 33-year track record of consecutive dividend increases.
Despite the downgrade, UBS acknowledges the potential of Kerry Group’s equity story over the next three years, anticipating an approximate 9% compound annual growth rate (CAGR) in EPS from 2025 to 2028. This forecast is competitive when compared to Kerry’s peers within the Staples sector. The company has demonstrated strong market performance, delivering a 30.4% total return over the past year, while maintaining a healthy gross profit margin of 51.4%.
The decision to downgrade the stock to Neutral is driven by the expectation of limited earnings upgrades in the upcoming 12 months. This period is crucial for UBS’s assessment, as earnings performance is a key factor in their rating decisions.
The analyst’s commentary also highlights concerns over consumer confidence in the United States, which could impact Kerry Group’s sales and financial performance. With the largest portion of its sales in the U.S., fluctuations in consumer confidence could pose a risk to Kerry’s earnings potential in the near term.
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