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Quarter-End Insights

Consumer Defensive: Cooking Up a Bit More Value

Despite tepid near-term growth prospects amid an intensely competitive landscape, pockets of value remain.

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  • Valuations in the consumer defensive sector have pulled back modestly and now trade about 4% below our fair value estimate, which is a reversal from the premium valuation we've seen over the recent past.
  • Despite our expectation that growth prospects should prove more favorable in emerging markets longer term, we don't believe beverage manufacturers stand to benefit from the same tailwinds in China.
  • Consumer defensive firms have looked to acquisitions as well as split-ups as a means to bolster value, but we don't believe that  ConAgra's (CAG) efforts to slim down stand to enhance its competitive position or drive outsize profit improvement.
  • From our vantage point, a handful of meat processing firms look attractive, with heightened speculation around industry pricing dynamics leading to overly pessimistic top-line assumptions being baked into the shares.

 

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