Consumer Defensive: Looking to M&A, Online Sales for Growth
We see a few values for long-term investors amid intense competition.
Quarter-End Insights
Mentioned: British American Tobacco PLC (BATS)
, Imperial Brands PLC (IMB)
, Japan Tobacco Inc (2914)
, Philip Morris International Inc (PM)
, Keurig Dr Pepper Inc (KDP)
, Japan Tobacco Inc (JAPAF)
, Blue Buffalo Pet Products Inc (BUFF)
, Amazon.com Inc (AMZN)
, Walmart Inc (WMT)
, Costco Wholesale Corp (COST)
- Consumer defensive valuations have pulled back, with the sector trading at about a 2% discount to our fair value estimates on a market-cap-weighted basis.
- With sales trends languishing, mergers and acquisitions persisted this quarter, as General Mills (GIS) scooped up Blue Buffalo (BUFF) and Dr Pepper Snapple Group (DPS) announced plans to merge with privately held JAB Holding.
- E-commerce continues to remain a focus to support retailers' top-line growth, even with the potential hit to margins.
- Despite the benefit from efficiency efforts, inflationary headwinds are starting to eat into profits.
After multiple quarters of slightly inflated valuations, the consumer defensive sector retreated modestly and now trades at a roughly 2% discount to our fair value estimates. As such, we now see a few more opportunities for patient investors to build positions in some competitively advantaged names.
John Brick, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.