The outlook for consumer spending is getting darker by the day, but the bad news is not universal. While some companies are poorly positioned regarding inflation, interest rate hikes, and the combined impact on consumer spending, others are not.
In some cases, like Dollar General (NYSE:DG) and General Mills (NYSE:GIS), the companies are positioned to benefit from trends that have consumers looking for value while in others, like Cinemark Holdings Inc (NYSE:CNK), the post-COVID rebound is still alive and kicking. In all cases, the analysts see value in these names, and we view that as a catalyst for higher share prices.
Cinemark Upgraded To Buy
Only a day after we called out competitor AMC Entertainment (NYSE:AMC) for its potential to deliver blockbuster results, Cinemark gets an upgrade, and it has the market moving. Morgan Stanley upgraded the stock to Overweight, citing a heavy upside in return to theaters by viewers.
In their view, the combined effects reduced fear, and a line-up of heavy-hitting titles like Top Gun: Maverick and the latest, Thor: Love And Thunder, has moviegoers returning to the theaters in droves. Analyst Benjamin Swinburne also points out that movies are a cheap form of entertainment and counter-cyclical, making them a good choice in recessionary times.
Morgan Stanley’s Overweight rating and a price target of $22 compare favorably to the Marketbeat.com consensus of Moderate Buy and $22.80. The Morgan Stanley (NYSE:MS) target is a bit below the consensus but implies more than 20% of the upside and comes with a robust Bull Case scenario.
Mr. Swinburne used a low multiple to get his target and there is an opportunity for a multiple expansion as well. Morgan Stanley thinks the stock could move up to the $36 level if movie trends are as strong as expected, good for another 55% of upside on top of the original target.
Dollar General A Good Buy For Bad Times
Oppenheimer reiterated its Top Pick rating on Dollar General, calling it a winner for good times or bad. Because of its position as a low-end discount retailer is well-positioned for growth in good or bad economies. In our view, it may even do better in bad times when shoppers are trading down to cheaper brands.
Oppenheimer’s rating and price target compare favorably to the consensus, which has the stock pegged at Moderate Buy with a target of $249. Oppenheimer raised its target to $275 from $240 which is the new high target on Wall Street. The takeaway is the sentiment of Moderate Buy has held steady over the past year while the price target has increased. We believe the consensus and high price target will continue to creep higher as the company builds momentum. Execs raised the guidance last reporting season and we won’t be surprised if they do it again in early August when the company next reports.
General Mills Breaks Out After Analysts Upgrades
General Mills popped following the last earnings report because the guidance for earnings was positive and the analysts liked what they saw. The Consumer Staples company was not only able to pass through price increases but organic strength was present as well, and both are aiding the healthy 2.80% dividend yield.
The stock has gotten no less than 7 major upgrades or price target increases since the mid-June release and the sentiment is still lagging the market. As it is, the Marketbeat.com consensus sentiment is only Hold with a price target below the current price action but both are trending higher. The most recent activity views the stock as fairly valued but we think it could gain another 12.5% to 15% before the next reporting period.
