UBS Picks PepsiCo, Dutch Bros for Consumer Sector Growth

UBS has recently released its list of top picks in the consumer sector, selecting seven stocks with unique investment value based on exclusive or distinctive data sources. The list includes PepsiCo (PEP.US) and Peloton (PTON.US), among others.

PepsiCo is highlighted for its potential to show significant improvement over the next 12 to 18 months. The company is seen as one of the few large consumer staples with both defensive attributes and valuation expansion potential. It is expected to resume growth in line with algorithmic expectations by the second half of 2026, with earnings per share projected to grow at a high single-digit rate for the full year of 2026. Among all the recommended stocks, PepsiCo is noted for its attractive risk-reward profile.

Schwan's Company (SJM.US) is expected to achieve mid-single-digit organic growth, driven by strong performance in its coffee segment and pricing power. This growth is anticipated to offset pressure from competitors like Hostess Brands (TWNKW.US). The company's cost savings, potential price increases, and strong offline channel advantages are expected to support steady long-term earnings growth, potentially exceeding current market expectations.

Acme United (ACI.US) is seen as having an overcorrected stock price that does not reflect its potential upside. The company has moved past disruptions from its merger plans with Kroger (KR.US) and has shown consistent double-digit growth in its pharmacy business for 15 consecutive quarters. This segment is crucial as pharmacy users are among the highest lifetime value customers for Acme United. The company's increased focus on pricing strategies is expected to further drive same-store sales growth in its food and grocery business.

Dutch Bros (BROS.US) is anticipated to see further stock price appreciation due to its leading store expansion rate and sustained growth in sales and customer traffic, expected to continue through the second half of 2025 and into 2026. The company is poised to gain market share in the high-growth coffee category, with projected revenue growth of over 20%. This growth will be supported by strong consumer brand recognition, competitive new products, effective marketing, mobile ordering services, and operational efficiency improvements. Additionally, Dutch Bros plans to launch food products in 2026.

Ulta Beauty (ULTA.US) has demonstrated strong execution under its new CEO, with improved operational efficiency and a favorable competitive environment. The company's same-store sales growth accelerated in the second quarter of 2024, and a moderate comparison base in the second half of the year, along with a rich new product launch plan, is expected to support continued growth and outperformance. For the 2024 fiscal year, profit margin improvement is a key growth opportunity, with slower increases in sales, general, and administrative expenses expected to drive upward revisions in earnings estimates.

On Running (ONON.US) is focused on product innovation, performance enhancement, athlete endorsements, event partnerships, and expanding its direct-to-consumer (DTC) model. These strategies, combined with its premium full-price brand positioning, are expected to drive industry-leading sales growth and exceed profit margin expectations. On Running is also better positioned to handle tariff issues compared to many apparel and home goods companies.

Peloton (PTON.US) has been given a 'buy' rating with a target price of 11 dollars. The rationale includes expected revenue growth and cost optimization, which could drive EBITDA higher by 2026. Core fundamentals are trending positively, and the stock's current trading multiple of 6-7 times EBITDA is seen as attractive, with cash flow at an inflection point. The growth in subscription users is crucial for valuation expansion, and Peloton must maintain this growth trajectory even during seasonal consumption peaks, despite potential user attrition from price increases.