Consumer Defensive: Still Thirsty for Growth
Although growth remains sluggish, opportunities in consumer defensive stocks are still available for selective investors.
Quarter-End Insights
Mentioned: Symrise AG (SY1)
, Symrise AG (SY1)
, Mead Johnson Nutrition Co (MJN)
, Reckitt Benckiser Group PLC (RBGLY)
, Pinnacle Foods Inc (PF)
, The Kraft Heinz Co (KHC)
, Blue Buffalo Pet Products Inc (BUFF)
, Sanderson Farms Inc (SAFM)
, Campbell Soup Co (CPB)
, Mondelez International Inc (MDLZ)
- Consumer defensive sector valuations have edged higher, with shares trading about 5% above our fair value estimates, reversing the approximately 4% discount we saw in the last quarter.
- Top-line growth is hard to come by, with prices relatively stable and commodity costs still reasonably low; we expect the environment to persist short term before reverting to more normal patterns of inflation.
- Cost-cutting and share buybacks have dominated as firms try to preserve EPS growth in a soft revenue environment; while much of the efficiency benefit should prove durable as conditions normalize, firms run the risk of underinvesting in their brands and growth infrastructure.
- Kraft Heinz's (KHC) failed bid for Unilever (UL) has spurred speculation that the firm could look to other targets as it continues its consolidation efforts; Reckitt Benckiser's (RBGLY) pending $17 billion purchase of Mead Johnson (MJN) also indicates M&A activity remains robust in the sector.
Zain Akbari does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.