Yahoo Finance named Novo Nordisk (NVO) its 2023 Company of the Year. TD Cowen Managing Director Andrew Charles joins Yahoo Finance to discuss the company's outlook on weight-loss drugs like Ozempic or Wegovy. TD Cowen's 2030 outlook for GLP-1s includes 14.3 million people in the United States taking the drugs, a 30 percent reduction in calories by GLP-1 users, and 0.07 percent decrease in overall U.S. population calorie consumption.
"There's a pretty robust catalyst path ahead for this dynamic and for this drug, but when you kind of start do the math behind it, our view is that this is really all bark and no bite," Charles explains.
Charles also notes some stocks that "fit in more of a protected status versus the more single eater occasions" include Domino's Pizza (DPZ), Wingstop (WING), and Darden Restaurants (DRI).
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Video Transcript
JOSH LIPTON: So it looks as if the immediate disruption fears over GLP-1 drugs may have settled. But the medium and long-term risks the consumer sector still of course in question. For a deeper outlook on this, let's bring in Andrew Charles. He is TD Cowen's senior research analyst of the restaurant sector. And Brooke DiPalma still here with me as well.
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So Andrew, Brooke set it up great there for us. And as she noted, some are arguing that this sort of investor response, this investor reaction to these new weight loss medicines, Andrew, may appear kind of overblown at least in terms of the near term. Is that your take?
ANDREW CHARLES: Hey, Josh. Good to see you. I would agree with what you just said. I think this is something that we're certainly monitoring. I think the catalyst path ahead, as we think about the fact around insurance coverage, as we think about an oral version of the drug, as we think about expanded supply chain, this is something where I think the narrative will come back. We're fully-- we're fully expecting that.
I think you guys nailed it that it was kind of in the October time frame, maybe in the beginning of November, that we really were fielding quite a few calls on this from investors. That certainly tapered off. You know, and look, I think that this is something that, as we think about the long-term impact here, we've collaborated with our TD Cowen and pharma team who's got a 20 30 target of 14 million users or so, roughly $10 million for diabetes and 4 million for weight loss. And if we think about that and around how many calories they're reducing, we think it gets to about a cumulative 70 basis points of calorie reduction across the United States.
And what's important about that is that's-- if we think about that linearly and that that's about 10 basis points per year leading up to that, we have the restaurant industry growing 3% to 4%. And so totally appreciate there's a pretty robust catalyst path ahead for this dynamic and for this drug. But when you start doing the math behind it, our view is that this is really all bark and no bite. No pun intended.
BROOKE DIPALMA: Andrew, let's say that investors want to play it a bit safe here, what are some names that you're encouraging investors to go to should this become a larger issue longer term?
ANDREW CHARLES: Yeah. So, Brooke, great question. I think there is a misconception in the market that we worked with our pharmaceutical teams. This isn't a people are going to eat healthier, it's more of a general appetite suppressant. And so some of the healthier position names, if you will, from a lower calorie perspective, those are not where we want to be focusing.
What I think is really important is really about party size. And what I mean by that is that the occasions that skew more to delivery and skew more to dining out, a.k.a. skew less to a single eater occasion, I think those are going to be the most insulated. And so of the names we follow, we think that it's Domino's, it's Wingstop, it's Darden, as well as first watch which are the names that just kind of fit in more of a protected status versus the more single-eater occasions that are more popular, traditional quick service and fast casual.
JOSH LIPTON: All right. So some stock picks there, Andrew, which I know viewers appreciate. In terms of just a different sector, I know your restaurants, but if you look at the packaged food category, Andrew, would your take be that's maybe more risk than the names you cover of potentially at least medium to long terms from some of these new weight loss drugs?
ANDREW CHARLES: Yeah. So I'm very lucky to be working with Rob Moskow. He's been at Cowen now and launched for about four months now. And he and I have discussed how packaged food is going to be more impacted, given that it skews more to single-eater occasions. And so you're right that restaurants are certainly something that we're hearing about. But my conversations with Rob just it's been more active at least two months ago around the conversation around GLP-1s. And our view as a house is that you're going to see packaged foods more impacted relative to our restaurants.
BROOKE DIPALMA: Innovation really seems to be the name of the game moving into 2024 to grab consumer's attention. Could we see restaurant chains really change up their menus, really adhere to that healthy cautious or more conscious consumer? Will we see more salads? Will we see more protein snack boxes perhaps? What's your take on that?
ANDREW CHARLES: Unlikely. I think what you're more likely to see is certainly more innovation with chicken. We know that beef is likely to be inflationary next year while chicken is a commodity likely to be more benign. So I think more innovation on the chicken side as a lot of the beef producers-- are concepts that skew to beef-- excuse me-- are more likely to skew more or going to try to boost their chicken mix which is higher margin and skews younger.
And then beverages as well remain a big focus in the sector, particularly given the success of Starbucks and Dutch Bros with ice beverages that are quite high margin. You're seeing in general, folks definitely wanting to see more beverage sales, and so really help boost the margin profile that way. So, Brooke, maybe not so much on the healthier side, just more so on the higher margin, what skews younger, between beverage opportunities as well as chicken.
JOSH LIPTON: And, Andrew, I got to get you out of here on this question. Another name you cover is, Shake Shack. That was making some headlines. CEO is going to be retiring in 2024. Just interested to, Andrew, to get your take on that news and your rating on the stock.
ANDREW CHARLES: Yeah. We're market perform on this one. You know, I think that what you're seeing there is the opportunity for them to really-- you know, Randy Garutti did a great job of taking this to roughly 500 stores around the globe when you include their licensed business. What I think Shake Shack has the opportunity to do right now is to find someone who can scale this to the next couple hundred stores and really be able to really lean in more to its scale as an organization.
And really, the brand here is so much bigger than the store base that it has in place right now. And so the opportunity is to really build this brand higher in a really scaled way, I think, is what Shake Shack has the opportunity to do here. So very eager to hear who the successor is going to be, of course. They are going external for this, which I think is the right move. So we'll stay tuned on that one to see who they find.
JOSH LIPTON: All right. Andrew Charles, TD Cowen's managing director of consumer and restaurants, our thanks for joining us today. And, of course, our thanks to Brooke DiPalma as well.