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Quarter-End Insights

Consumer Defensive: Thirst for Growth Has Yet to Be Quenched

Although growth has continued to languish, investors should keep competitively advantaged names in the consumer defensive space on their shopping lists.

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  • Valuations across the global consumer defensive coverage landscape have ticked up modestly, now trading at just a 2% discount to our fair value estimates on a market-cap-weighted basis, versus a 5% discount three months prior.
  • As a means to combat sluggish growth trends that are plaguing operators across the industry, M&A activity has remained robust, with  Conagra (CAG),  Coca-Cola (KO), and  PepsiCo (PEP) all pursuing inorganic growth opportunities to bolster their sales prospects in the past quarter.
  • Retailers and consumer product manufacturers alike are working to facilitate further e-commerce penetration.

Relative to last quarter, the consumer defensive sector is now trading at just a 2% discount to our fair value estimates (up from 5% a quarter ago). However, we still maintain that opportunities for long-term investors to build positions in competitively advantaged names remain.

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Erin Lash, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.