A new class of highly effective weight loss medications could deal a blow to several major Swiss food companies while benefiting others, according to Vontobel. The drugs, which imitate the effects of the GLP-1 hormone to reduce appetite and calorie intake dramatically, are showing remarkable efficacy in clinical trials. As a result, patients lose up to 25% of their body weight on average. Despite the high cost, the investment bank estimates that the demand for these drugs will grow 25% compounded annually over the next three to four years. “GLP-1 users report significantly lower hunger and food cravings, as well as a sensitive stomach,” said Arben Hasanaj, equity analyst at Vontobel, in a note to clients on March 20. “Therefore, the most affected categories are snacks/confectionary, ‘fast food’, frozen packaged foods, ice cream, soft drinks & alcohol and, to a lesser extent, (red) meat, pasta, and coffee.” Potential losers That spells potential trouble for Swiss conglomerates with significant exposures to those categories, like baked goods maker Aryzta and chocolate giant Barry Callebaut , according to Vontobel. Both stocks are traded in the U.S. over the counter. The Swiss investment bank estimated that the annual mid-term growth of those two companies could fall by 20 to 40 basis points if the obesity drugs gain widespread adoption. “Companies exposed to the mentioned categories and present in high-obesity countries (US, Europe) are more likely to see negative effects,” the Vontobel analyst said. “Therefore, we see a medium impact” for both Swiss companies, Hasanaj added. Vontobel expects shares of Aryzta and Barry Callebaut to be relatively flat over the next 12 months. However, other analysts disagree. For instance, Stifel analyst Pascal Boll’s bullish price targets point to a 37% upside potential for Aryzta. Meanwhile, Berenberg analyst Samantha Darbyshire expects Barry Callebaut to rise by 45% over the next 12 months. Potential beneficiaries Vontobel also pointed out that not all packaged food companies will likely lose out as the new weight loss drugs are adopted more widely. In contrast, Nestle and ingredient maker Givaudan could see a limited or positive impact, as they have diverse product portfolios that include many healthy offerings, Vontobel said. The two stock are also traded in the U.S. over the counter. “Diversified Nestlé & Givaudan (both Buy) should be less affected as they can also contribute to this health trend,” the Vontobel analyst said. Instead, companies with a “narrow focus on exposed categories” are likely to feel the impact of the weight loss drugs on their bottom line.
