Interest rates

Higher interest rates could deeply reduce these stocks of basic consumer goods. Read more.

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Investors have turned to consumer staples with a more defensive mindset at play in 2022, but an overhang for the group is the impact of rising interest rates on leverage.

With rates that should balance out higher, Bank of America addressed the question of which consumer staples companies have a higher percentage of fixed rate debt versus floating debt subject to higher payments.

In general, BofA found that companies with smaller market capitalizations and generally higher yielding or recently IPOs had a higher percentage of floating rate debt than their larger counterparts. Exceptions to these rules were large companies with large commercial paper programs like Coca-Cola (New York stock market :KO), Hershey (HSY), General Mills (GIS) and McCormick & Company (MKC).

It should be noted that some companies entered into interest rate swaps in the second quarter, which further increased exposure to variable-rated debt.

According to BofA’s deep dive into the composition of debt, some companies stood out with higher interest rate risk.

in the food subsector, the list of companies at risk due to rising floating debt included Freshpet (FRPT), Dole plc (ALMS), Sovos brands (SOV), Product Mission (AVO), Utz Brands (UTZ), McCormick (MKC), Hershey (HSY), Weston Lamb (L.W.) and General Mills (GIS).

In the beverages subsector, the list included Coca-Cola (KO) and Duckhorn Wallet (NAPA).

In the household products subsector, the list included Coty (COTY), Church & Dwight (CHD), and Olaplex (OLPX).

See Seeking Alpha Quant Ratings in the Consumer Staples Sector.