Consumer Defensive: Cooking Up a Bit More Value
Despite tepid near-term growth prospects amid an intensely competitive landscape, pockets of value remain.
Quarter-End Insights
Mentioned: Anheuser-Busch InBev SA/NV (ABI)
, Anheuser-Busch InBev SA/NV (BUD)
, The Kraft Heinz Co (KHC)
, Coca-Cola Co (KO)
, Sanderson Farms Inc (SAFM)
, Conagra Brands Inc (CAG)
, Pilgrims Pride Corp (PPC)
, Danone SA (DANOY)
- 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 shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.