Skip to Content
Quarter-End Insights

Consumer Defensive: A Handful of Values in an Overheated Sector

Cost-cutting remains a focus amid continued slowing growth, but the sector is overvalued on the whole.

Mentioned: , , , , , , ,
  • The consumer defensive sector remains overvalued, trading at roughly a 6% premium to our fair value estimate. Macroeconomic uncertainty, low prevailing interest rates, and continued near-term cost-cutting opportunities have drawn investment in recent quarters, and we don't see a sizable margin of safety in the sector's current stock prices.
  • Kraft Heinz (KHC) in particular will likely further execute on near-term cost savings opportunities, but the market doesn't appreciate the impending headwinds that are likely to stall its margin expansion potential in the longer term, including a need to reinvest in brand and marketing expenses to remain competitive.
  • Investors looking for better growth prospects--without sacrificing solid fundamentals--should give ingredient suppliers a look. Despite the absence of branding or pricing power, ingredients companies often have just as good margins and returns on capital as branded consumer companies. They also provide protection from channel shifts that impinge on branded consumer companies by capturing growth from a variety of angles.
  • Given relatively low global growth opportunities, M&A activity in consumer defensive remains a core strategy, and the tie up between AB Inbev (BUD) and SABMiller (SBMRY) is on track to close in mid-October.


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

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.