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Quarter-End Insights

Our Outlook for Consumer Cyclical Stocks

Top-line comparisons will become more difficult in the back half of 2012, but margin tailwinds and increased share repurchase activity set the stage for robust earnings growth.

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  • Consumer cyclical names enjoyed a better-than-expected first half for 2012, but several variables linger.
  • Even if revenue growth slows, margin expansion is possible.
  • Management teams are still targeting share repurchases to juice earnings.

Better-Than-Expected First Half 2012 for Consumer Cyclical Names, but Still Several Variables to Consider
Midway through 2012, our underlying thesis, which calls for a relatively slow and at some times volatile economic recovery in the United States, remains intact. We note that consumer cyclical companies have generally posted stronger-than-expected sales, margin, and earnings-per-share gains in the first half. Looking ahead, there are still some reasons for optimism, including the post-recession drop in U.S. unemployment, the rebound in the manufacturing and service sectors, and normalizing levels of inflation. However, concerns of slower business spending, contagion in Europe, and an uninspiring picture of U.S. consumer confidence have grabbed the headlines.

Peter Wahlstrom does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.