U.S. Markets close in 1 hr 32 mins

Consumer Products Industry Players Bank on Buyouts & Innovation

Vrishali Bagree

The Zacks Consumer Products – Staples industry comprises marketers, producers and distributors of a wide range of consumer products, including personal care items, cleaning equipment, stationery, bed and bath products and household goods like kitchen appliances, cutlery and food storage among others. Some of the industry participants provide batteries and lighting products, while the space also includes food store retailers operating superstores, convenience stores, supermarkets and drugstores.

Let’s take a look at the three major industry themes:

•    As the industry participants mainly provide essentials used in daily lives, demand for most of the products remains fairly stable. Thus, consumer product players are committed toward unique revenue-boosting initiatives to squeeze out more from their operations. Though demand is relatively stable, competition posed by cheaper alternatives is a concern.

•    Industry players are focused on optimizing portfolio through acquisitions and divestitures, which enable them to increase focus on areas with higher growth potential. Also, companies are adopting prudent pricing strategies to gain market traction. Apart from this, a few companies are making efforts to fortify position through store expansion and reward programs.

•    To keep pace with evolving consumer patterns, several players are enhancing their digital and e-commerce capacities. To this end, they are chalking out digital marketing plans and other investments to boost e-commerce sales. 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 #57, which places it in the top 22% 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 encouraging 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.

The industry’s position in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate.

Given the solid 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 over the past year. However, the industry has performed better than the broader Zacks Consumer Staples sector in the same time frame.

The industry has lost 1.6% over this period against the S&P 500 index’s rise of 3.8%. Meanwhile, the broader sector has fallen 5%.

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 16.29X compared with the S&P 500’s 16.63X and the sector’s 18.06X.

Over the last five years, the industry has traded as high as 21.25X, as low as 14.19X, and at the median of 18.26X, as the chart below shows.

Price-to-Earnings Ratio (Past 5 Years)




 
Bottom Line


Portfolio optimization, product launches and e-commerce developments will continue fueling sales. Also, companies in the space are likely to tide over margin woes with efficient cost-cutting efforts and restructuring plans.  However, stiff competition from private players cannot be ignored.

None of the stocks in the Consumer Products – Staples space currently hold a Zacks Rank #1 (Strong Buy). However, we are presenting stocks which are well positioned to capitalize on opportunities.

Ollie's Bargain Outlet Holdings, Inc. (OLLI): For this value retailer of brand name merchandise, the consensus EPS estimate for the current fiscal year has remained stable over the last 30 days. This Zacks Rank #2 (Buy) stock has rallied almost 37% over the past year. The company has an estimated long-term earnings growth rate of 25%. It has an average positive earnings surprise of 7.3% for the trailing four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

Price and Consensus: OLLI





Edgewell Personal Care Company (EPC): The consensus EPS estimate for this Zacks Rank #2 company has been stable over the last 30 days. The manufacturer and marketer of personal care items has an average positive earnings surprise of about 25% for the last four quarters. Notably, the stock has gained close to 9% in the past three months.

Price and Consensus: EPC





Kimberly-Clark Corporation (KMB): The Zacks Consensus Estimate for this Dallas, Texas-based company’s current year EPS has remained stable last 30 days. The company has an estimated long-term earnings growth rate of 5.5%. The Zacks Rank #3 (Hold) company has seen its shares rise as much as 10.7% in the past year.

Price and Consensus: KMB





Today's Best Stocks from Zacks

Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.

This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.

See their latest picks free >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Ollie's Bargain Outlet Holdings, Inc. (OLLI) : Free Stock Analysis Report
 
Kimberly-Clark Corporation (KMB) : Free Stock Analysis Report
 
Edgewell Personal Care Company (EPC) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research