The U.S. is only one of several countries that have imposed economic sanctions on Russia in retaliation for its invasion of Ukraine. GETTY IMAGE
For the past year, the Ukraine conflict has disrupted financial markets around the world. The U.S. is only one of several countries that have imposed economic sanctions on Russia in retaliation for its invasion of Ukraine. Russia’s economy is feeling the pain. The International Monetary Fund estimates Russia’s gross domestic product contracted 2.2% in 2022. The good news for U.S. investors is that most major U.S. stocks have relatively little business exposure to Russia and Ukraine, but some companies have completely shut down their business in the region. Here are eight U.S.-listed stocks with direct or indirect exposure to the Ukraine conflict:
Philip Morris International Inc. (PM)
Philip Morris International is one of the world’s largest tobacco companies and is the parent of brands such as Marlboro, Parliament and L&M. It also generated about 8% of its total sales from Russia and Ukraine prior to the conflict, nearly twice as much exposure as any other stock in the S&P 500. Bank of America analyst Lisa Lewandowski estimates the Russia-Ukraine conflict dropped Philip Morris’ 2022 earnings per share, or EPS, growth down from 12% to 10%, but she remains bullish on the company’s long-term outlook. Philip Morris also pays an attractive 5% dividend yield – the highest of any stock on this list. Bank of America has a “buy” rating and $120 price target for PM stock.
PepsiCo Inc. (PEP)
PepsiCo is a global beverage and snack company that owns valuable brands such as Frito-Lay, Gatorade and Mountain Dew. PepsiCo generated about 4.4% of its total revenue from Russia and Ukraine in 2021. Still, Bank of America analyst Bryan Spillane says PepsiCo has maintained modest volume growth and raised prices to pass higher costs on to customers. Spillane is bullish on PepsiCo’s gross margin momentum, and its long-term investments in brand building. He projects 6% EPS growth and 4% revenue growth for PepsiCo in 2023. Bank of America has a “buy” rating and $205 price target for PEP stock.
Mohawk Industries Inc. (MHK)
Mohawk produces carpet and flooring products, including rugs, ceramic tile and laminate flooring. The company generates about 4.3% of total revenue from Russia and Ukraine. Bank of America analyst Rafe Jadrosich says the slowdown in U.S. housing starts in recent quarters has weighed on flooring demand, and he anticipates flooring weakness will continue into 2023 as interest rates rise. In addition, higher energy prices and macroeconomic headwinds have reduced customer budgets in Europe, where Mohawk generates about 30% of its sales. Bank of America has an “underperform” rating and $100 price target for MHK stock.
McDonald’s Corp. (MCD)
McDonald’s is the largest fast food restaurant in the world and has about 37,000 restaurants in 120 different countries. Not surprisingly, more than 600 of those restaurants are in Russia, and Russia and Ukraine make up about 4.2% of McDonald’s total revenue. Bank of America analyst Sara Senatore says McDonald’s Cactus Plant Flea Market Box promotion was a huge success, and the company should benefit from price hikes, warmer weather and easy comparisons in the first quarter. However, she says McDonald’s shares are currently fully valued, trading at a roughly 30% earnings multiple premium to the S&P 500. Bank of America has a “neutral” rating and $297 price target for MCD stock.
EPAM Systems Inc. (EPAM)
EPAM Systems is a digital engineering and consulting platform that generates about 4% of its revenue from Russia and Ukraine. Bank of America analyst Jason Kupferberg says the conflict in Ukraine has created significant geopolitical uncertainty for EPAM considering roughly 40% of the company’s employees were in Ukraine, Russia or Belarus prior to the invasion. Kupferberg says EPAM has a long track record of strong execution, and the company has successfully relocated many of its employees in the region to Uzbekistan and other locations. Bank of America has a “buy” rating and $443 price target for EPAM stock.
Carnival Corp. (CCL)
Carnival is the world’s largest cruise line operator. Carnival investors experienced a near worst-case scenario when the entire cruise industry was completely shut down for more than a year during the worst stages of the COVID-19 pandemic. Unfortunately, Carnival also generates about 3.6% of its revenue from Russia and Ukraine. Carnival shares are down 42.9% in the past year – the worst performance of any stock on this list. Bank of America analyst Geoffrey d’Halluin says Carnival’s recent bookings commentary has been encouraging, but its highly leveraged balance sheet remains a big risk. Bank of America has a “neutral” rating and $13 price target for CCL stock.
PVH Corp. (PVH)
PVH is one of the world’s largest apparel companies and is the owner of popular brands Calvin Klein, Tommy Hilfiger and Heritage. PVH generates about 3.6% of its revenue from Russia and Ukraine. Bank of America analyst Christopher Nardone says the company’s recently announced plan to bring core product categories in-house and away from G-III Apparel Group Ltd. (GIII) improves PVH’s long-term earnings potential. In the near term, Nardone says PVH’s 2023 outlook and potential valuation upside hinges on the company overcoming macroeconomic headwinds in Europe. Bank of America has a “buy” rating and $85 price target for PVH stock.
Westinghouse Air Brake Technologies Corp. (WAB)
Westinghouse Air Brake Technologies, or Wabtec, provides equipment and services for freight rail and passenger transit vehicles. The company generates about 3.5% of its revenue from Russia and Ukraine. Bank of America analyst Ken Hoexter says Wabtec is positioned to generate 11.9% EPS growth in 2023, but that growth may be skewed more toward the second half of the year. The company expects international locomotive orders to help drive revenue growth but compress margins in the first half of the year. Wabtec shares are up 20% in the past year, but Hoexter sees limited upside from here. Bank of America has a “neutral” rating and $112 price target for WAB stock.
