The Zacks Consumer Products Staples industry consists of companies involved in marketing, producing and distributing a wide range of consumer products. These include personal care items, cleaning equipment, stationery, bed and bath products and household goods like kitchen appliances, cutlery and food storage. Some of the industry participants provide batteries and lighting products, while the space includes food store retailers operating superstores, convenience stores, supermarkets and drugstores.
Let's take a look at the three major industry themes:
- Several companies in the industry are likely to benefit from the burgeoning demand for staples or essential goods stemming from consumers' panic-buying trends amid the coronavirus outbreak. Markedly, essentials like hand sanitizers, tissue paper, toilet paper, cleaning wipes, grocery, infant supplies and related staples have seen an unusual rise in demand over the past month. This makes the role of several consumer products companies such as Kimberly-Clark (KMB) important. In fact, demand for most of the products provided by this industry's participants remains fairly stable in general. No wonder, consumer product players are focused on concerted revenue-boosting initiatives to squeeze out more from their operations.
- Industry players are focused on optimizing portfolio through buyouts and divestitures, which enable them to increase focus on areas with higher growth potential. Also, innovation in areas that are witnessing increasing consumer interest, such as organic products, is adding to portfolio strength. Companies are also adopting prudent pricing strategies to gain market traction and battle input cost challenges.
- Several players are enhancing their digital and e-commerce capacities to keep pace with evolving consumer patterns. While these endeavors act as major tailwinds, the related costs keep margins under pressure. Also, higher advertising and other growth-related investments are threat to margins. Nevertheless, solid cost-containment and restructuring plans by companies should offer some respite.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Consumer Products - Staples industry is housed within the broader Zacks Consumer Staples sector. It currently carries a Zacks Industry Rank #92, which places it in the top 36% of more than 250 Zacks industries.
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Given the favorable near-term prospects, we will present a few stocks that have the potential to outperform the market. But before that, it's worth taking a look at the industry's shareholder returns and current valuation.
Industry Lags on Stock Market Performance
The Zacks Consumer Products - Staples industry has lagged the S&P 500 index as well as the broader Zacks Consumer Staples sector over the past year.
The industry has lost 25.2% over this period, compared with the S&P 500 index's decline of 14.3%. Meanwhile, the broader sector has dropped 17.1%.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month Price-to-earnings (P/E) ratio, which is commonly used for valuing consumer staples stocks, the industry is currently trading at 19.18X compared with the S&P 500's 15.37X and the sector's 16.14X.
Over the last five years, the industry has traded as high as 21.93X, as low as 13.74X, and at the median of 17.95X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
Companies in the space may benefit from the increased demand for essential items amid growing coronavirus scares. Apart from this, sales are likely to gain on portfolio optimization, innovation and e-commerce developments. Also, companies in the space are likely to tide over cost related hurdles with stringent saving measures, restructuring plans and efficient pricing. Stiff competition from private players cannot be ignored.
All said, we are presenting a few stocks from the Consumer Products - Staples space that are well positioned to capitalize on the opportunities.
Grocery Outlet Holding Corp. (GO): The Zacks Consensus Estimate for this California-based company's current-year EPS has increased 9.9% in the last 30 days. The company has an estimated long-term earnings growth rate of 10.8%. The Zacks Rank #1 (Strong Buy) company has seen its shares rise as much as 20.7% in the past year. You can see the complete list of today's Zacks #1 Rank stocks here.
Price and Consensus: GO
Newell Brands Inc. (NWL): This Atlanta, GA-based company has a splendid earnings surprise history. It has outperformed the consensus mark by 49.1%, on average, in the trailing four quarters. The Zacks Rank #3 (Hold) company has an estimated long-term earnings growth rate of 1.7%.
Price and Consensus: NWL
Ollie's Bargain Outlet Holdings, Inc. (OLLI): This Zacks Rank #3 (Hold) company has an estimated long-term earnings growth rate of 22.7%.
Price and Consensus: OLLI
Energizer Holdings, Inc. (ENR): This Zacks Rank #3 company has an estimated long-term earnings growth rate of 8.2%.
Price and Consensus: ENR
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Ollie's Bargain Outlet Holdings, Inc. (OLLI) : Free Stock Analysis Report
Newell Brands Inc. (NWL) : Free Stock Analysis Report
Kimberly-Clark Corporation (KMB) : Free Stock Analysis Report
Grocery Outlet Holding Corp. (GO) : Free Stock Analysis Report
Energizer Holdings, Inc. (ENR) : Free Stock Analysis Report
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