Stocks like UnitedHealth and Brink’s are attractive, Goldman says
Goldman Sachs said this week there’s a host of well-positioned stocks ready to soar even if market conditions deteriorate. Analysts said these companies have defensive qualities and present a safe haven for investors. CNBC Pro combed through Goldman’s research looking for attractive buying opportunities amid the market uncertainty. They include Zoetis, Graphic Packaging , Novartis, Brink’s , UnitedHealth and Cintas. Graphic Packaging Holding “Unique defensive growth at a discount,” Goldman said recently of the commercial packaging materials company. Shares of Graphic Packaging are up almost 17% this year, and analyst Adam Samuelson said the stock remains attractive and compelling. The firm said in a note to clients after the company’s late October earnings report that’s it’s feeling even more bullish. “We come away from 3Q22 results with our positive view on GPK shares reinforced, following better-than-expected organic volume growth and gross margins…,” the firm wrote. Samuelson said Graphic Packaging is underappreciated by investors in that it’s differentiated itself from competitors with its strong mix of cash flow and compounding earnings. The company also continues to get unprecedented productivity from its newest Michigan plant known as K2, which has enabled Graphic Packaging to improve backlogs and meet customer demand, according to Samuelson. “We believe this will increasingly distinguish GPK from other fiber-based packaging companies who face more challenging demand prospects against potential supply additions over the next 18 months,” he said. Graphic Packaging is also a beneficiary of what Samuelson calls a “$12.5 billion market opportunity” as businesses and consumers shift from plastic to paper. “As a result, GPK’s medium-term outlook remains bright,” he added. Brink’s The security and protection company is firing on all cylinders if the company’s recent earnings report is any indication, Goldman said. Brink’s reported robust third-quarter revenue growth in late October, and analyst George Tong said the stock has more room to run. In particular, customer demand has proven to be “resilient” for the company and Brink’s cash management solutions division continues to take share, according to the firm. “We believe BCO’s healthy growth outlook will be accompanied by 100 bps of annual EBITDA margin expansion from routing, facilities and technology efficiencies, augmented by a new global restructuring plan,” Tong added. Management continues to pull all the right levers, according to the analyst. This includes Brink’s recent acquisition of ATM networks company NoteMachine , which Tong said has greatly enhanced the company’s tech portfolio. “We believe Brink’s is well-positioned to sustain attractive organic revenue growth leveraged to both pricing and volume increases, despite the current macro uncertainty, following 3Q results,” he wrote. Shares are down 9.8% this year. UnitedHealth Goldman is also standing by shares of insurance giant UnitedHealth after it beat Wall Street’s estimates on its quarterly results and raised guidance in mid-October. Analyst Nathan Rich said the stock is well positioned for the remainder of 2022 and beyond. “UNH expects that its 2023 EPS guidance range will capture consensus at the high end,” he wrote. Rich siad management’s execution is “strong,” with many levers to pull to protect against an uncertain macro. “The company noted that its outlook for 2023 contains prudent assumptions for the economic environment next year,” Rich said. UnitedHealth has a “broad and deep pipeline of opportunities” and “incremental capital deployment could be a further tailwind to 2023 and beyond,” the firm added. Shares are up 7% this year, but Rich said the stock is still very “attractive” with “fundamental momentum” on its side. Brink’s “We believe BCO’s healthy growth outlook will be accompanied by 100 bps of annual EBITDA margin expansion from routing, facilities and technology efficiencies, augmented by a new global restructuring plan. … We believe Brink’s is well-positioned to sustain attractive organic revenue growth leveraged to both pricing and volume increases, despite the current macro uncertainty, following 3Q results.” UnitedHealth “Unsurprising outlook stands out – attractive for 2023 on fundamental momentum and capital deployment optionality. … Change accretion (1%), and strong execution across the core business. … The company noted that its outlook for 2023 contains prudent assumptions for the economic environment next year. … The company described a broad and deep pipeline of opportunities, and incremental capital deployment could be a further tailwind to 2023 and beyond.” Cintas “Healthy F1Q results, with attractive and resilient growth outlook for uniform rentals driven by pricing and no-programmer market. … We believe CTAS is well-positioned to deliver attractive top-line growth given the large and unpenetrated no-programmer market for uniform rentals, as well as the structurally higher demand for uniform rentals and ancillary services from the healthcare vertical post-COVID. Due to pricing power and efficiencies, operating margins are expanding on a y/y basis despite input cost inflation.” Novartis “Solid Q3 execution amidst attractive valuation. … We continue to see Novartis as well-placed to drive strong operational execution for the Innovative Medicines (IM) business medium term, with multiple ongoing product launches and late-stage pipeline optionality supplementing top-line growth, including a potential interim readout for the NATALEE study in 2022. … We see all of this in the context of an attractive valuation, with Novartis trading at c.12x 2023E P/E.” Graphic Packaging Holdings “Unique defensive growth at a discount. … We come away from 3Q22 results with our positive view on GPK shares reinforced, following better-than-expected organic volume growth & gross margins. … We believe this will increasingly distinguish GPK from other fiber-based packaging companies who face more challenging demand prospects against potential supply additions over next 18 months. … As a result, GPK’s medium-term outlook remains bright, with the company continuing to value-add the business by focusing incremental board conversions on the $12.5bn market opportunity for sustainability-driven growth from plastic-to-paper.” Zoetis “ZTS underperformed following its 3Q revenue/EPS miss vs. FactSet consensus and 2022 guide-down on supply chain headwinds across several key products. The supply issues were mainly related to capacity and input supply, and management stated that these issues, particularly capacity, are resolving with the company working through back orders. … We believe the stock remains attractive despite this added uncertainty in the near-term, trading near its historical low on our revised estimates.”
