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The Zacks Analyst Blog Highlights: Archer Daniels, Tyson Foods, Hormel, Campbell and Brown-Forman

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For Immediate Release

Chicago, IL – April 9, 2018 – announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Archer Daniels Midland Company (ADM - Free Report) , Tyson Foods, Inc. (TSN - Free Report) , Hormel Foods Corporation (HRL - Free Report) , Campbell Soup Company (CPB - Free Report) and Brown-Forman Corporation (BF.B - Free Report) .

Here are highlights from Friday’s Analyst Blog:

Can Consumer Staples Stocks Brave U.S.-China Tensions?

Wall Street and the White House are jittery as repercussions related to fears of a trade war with China, possibilities of three or more rate hikes by the Fed this year, and tech stock concerns regarding data privacy and antitrust risks continue to do the rounds. However, the Chinese government’s retaliation to the Trump administration’s levy of 25% tariffs on 1,300 imported goods from China topped the headlines.

China’s president, Xi Jinping, recently levied up to 25% tariffs on 106 U.S. imports, including soybeans, cars, chemicals and more. With this, both countries are targeting about $50 billion tariffs on imports from each other.

Signs of a U.S.-China trade war further became prominent with Trump’s intention to strike another $100 billion in tariffs on Chinese goods. This has certainly sent shock waves across the entire global economy.

The new tariffs framed by China's Ministry of Commerce are expected to hurt a host of U.S. industries, including consumer electronics, food, beverages, aircrafts and automobiles, among others. According to experts, the tariff is likely to be higher than anticipated, with the U.S. agricultural industry being the prime target.

The tariffs will also affect meat-exporting companies, with the levy of 25% tariff on pork. Per sources, China is one of the largest markets for U.S. pork exports in terms of value and volume. Consequently, the hiked tariffs are expected to cause significant loss for China’s meat exporters and in turn, hurt their profitability.

However, the effective date for the imposition of these tariffs has not been disclosed yet. While the United States stated that the tariffs will take effect after a public comment and consultation period lasting for about two months, China said that the imposition depends on Trump’s decision.

Alleged intellectual property violations by Chinese companies led to a U.S. trade deficit of $504 billion with China, which sparked the trade conflict between the world’s two largest economies. To force changes in China’s intellectual properties practices, the Trump administration at first imposed a tariff of up to $60 billion on Chinese imports, particularly on steel and aluminum. In response, China retaliated by imposing tariffs worth about $3 billion on 128 American exports.

Key U.S. Sectors at Stake

As is clear from the above discussion, the recently levied tariffs are likely to erode the profit margins of players in the Consumer Staples sector. This sector, which mainly comprises food, meat, beverages and agriculture stocks, is likely to be at risk after the imposition of the aforementioned tariffs.

Generally, Consumer Staples stocks are considered most defensive, owing to their nature of fulfilling the basic necessities of daily lives. However, how these stocks will battle the current turmoil remains to be seen.

Currently, Consumer Staples ranks among the top 50% of all Zacks sectors (8 of 16).

Let’s take a closer look at some of the prominent players in Consumer Staples, highlighting their current position and ability to sail through the trade war scenario.

Starting with Archer Daniels Midland Company, this leading food processing company remains on track with the accomplishments related to operational excellence and readiness program. Further, management remains encouraged to deliver growth through cost-saving efforts, enhanced capabilities, product innovations and global strength. Notably, the company has corn processing facilities in China and entered a joint development agreement with the China-based Qingdao Vland Biotech Group Co., Ltd to develop new enzymes for animal feed applications.  This exposure may call for troubles for the company if the trade-war intensifies. Nevertheless, the Illinois-based company sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Tyson Foods, Inc., also a Zacks Rank #1 (Strong Buy) company has been witnessing rising demand across the Beef, Chicken and prepared foods segments. Moreover, its Prepared Foods category has been delivering solid growth in particular, courtesy of rising demand for protein-packed brands and synergies from the AdvancePierre buyout. However, the company continues to incur higher wage and freight costs due to tightening market conditions. Also, raw materials price volatility remains a threat. Though the US-China conflict should have little impact on the company at present due to its modest exposure in China, the war may stall its chances to expand in the Chinese market.

Hormel Foods Corporation, the major manufacturer and marketer of various meat and food products in the United States and international markets, carries a Zacks Rank #2 (Buy). The company believes that marketing programs and elevated demand for on-trend branded products will continue to boost its revenues in the quarters ahead. Moreover, its near-term results are anticipated to improve on the back of the recently made acquisitions. However, its Jennie-O Turkey Store segment remains soft owing to excess meat stock in cold storage and fall in turkey prices. The company has a strong business in China and operates through exports, joint venture and licensing partnerships. Further, Hormel Foods is enhancing its global footprint with higher capital investments in China, which might be at stake due to improved tariffs.

Campbell Soup Company is progressing well with its cost savings plan. This is evident from the raised annualized savings target of $500 million. Also, the company remains keen on making acquisitions to enhance its brand portfolio and boost growth. The company’s recent buyout of Snyder’s-Lance is likely to aid Campbell in fortifying its snacking brands’ portfolio, thus making it a snacking leader. Moreover, the company’s Kelsen brand has been delivering solid performance in China, which might be hampered due to the proposed changes in tariffs. Nevertheless, Campbell carries a Zacks Rank #3 (Hold).

Brown-Forman Corporation, the major producer and distributor of premium alcoholic beverages in the world, continues to gain from solid growth in underlying sales, persistent momentum at its focus categories and strength in Jack Daniels. This Zacks Rank #3 stock remains optimistic on growth at its premium American whiskey and tequila brands. Looking ahead, management sees higher growth potential in China as it accelerates investments in this area. However, any adverse changes to the US-China relations may stall the company’s aspirations to grow in the region.

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