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4 Consumer Products Stocks in Focus Despite Industry Headwinds
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Players in the Zacks Consumer Products – Staples industry have been witnessing margin pressure due to elevated input and COVID-related costs. Also, increased investments in advertising and e-commerce among other growth initiatives raise concerns. Apart from this, moderation in the pandemic-led spike in demand is likely to impact year-over-year sales comparisons of a number of players.
Nonetheless, prudent saving measures, rising online sales and focus on portfolio enhancement and innovation have been working in favor of Newell Brands Inc. (NWL - Free Report) , Tupperware Brands Corporation (TUP - Free Report) , Albertsons Companies, Inc. (ACI - Free Report) and Chewy, Inc. (CHWY - Free Report) .
About the Industry
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 also provide batteries and lighting products. Apart from this, the space includes food store retailers – operating superstores, convenience stores, supermarkets and drugstores.
3 Trends Shaping the Future of the Consumer Products – Staples Industry
Pandemic-Led Demand Likely to Moderate: While a number of industry players gained from a bump in sales in most parts of 2020, the trend is likely to moderate in the near term. Notably, companies have been benefitting from burgeoning demand for staple items due to the pandemic-induced stock hoarding and elevated at-home consumption. However, with the vaccination drive gathering pace, consumers are likely to return to the old normal, which is expected to result in lower at-home consumption. We believe that these factors may weigh on year-over-year sales comparisons of a number of players in the consumer products – staples space. Incidentally, Kimberly-Clark Corporation’s (KMB - Free Report) first-quarter 2021 sales were hampered by unfavorable year-over-year comparisons owing to pandemic-led stock piling during the prior-year quarter as well as declines in the consumer tissue category. Further, management lowered its 2021 earnings and sales guidance to account for more challenging and volatile conditions in the short term.
Pressure on Margins: A number of players in the space are encountering high costs associated with COVID-19 such as increased pay, and elevated health and sanitization measures. Further, a spike in input costs as well as manufacturing costs is escalating margin pressure for some industry participants. Apart from this, higher advertising, e-commerce and other growth-related investments are a threat to margins. That being said, the companies’ solid cost-containment and restructuring plans should offer some respite.
Revenue-Driving Efforts: Consumer product players are focused on concerted revenue-boosting initiatives to squeeze out more from their operations. To this end, companies’ stringent focus on boosting e-commerce and digital operations has been a major driver, especially amid the pandemic, as increased social distancing has taken online shopping to another level. Also, innovation in areas that are witnessing increasing consumer interest has been adding to portfolio strength of companies like International Flavors & Fragrances Inc. (IFF - Free Report) . Further, industry players have been focused on optimizing portfolio through meaningful buyouts and divestitures, which enable them to increase focus on areas with higher growth potential. Apart from this, companies resort to prudent pricing strategies to gain market traction and fight cost-related challenges.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Consumer Products – Staples industry is housed within the broader Zacks Consumer Staples sector. It currently carries a Zacks Industry Rank #189, which places it in the bottom 24% 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 drab 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 bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually becoming less confident on this group’s earnings growth potential. Since the beginning of November 2020, the industry’s earnings estimate for 2020 has tumbled 21.1%.
Let’s look at the industry’s performance and current valuation.
Industry Versus Broader Market
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 dropped 5.2% over this period against with the S&P 500 index’s growth of 45.2%. Meanwhile, the broader sector has risen 21.2%.
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 24.43X compared with the S&P 500’s 22.93X and the sector’s 20.58X.
Over the last five years, the industry has traded as high as 25.45X, as low as 13.32X, and at the median of 18.11X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
4 Consumer Products Stocks to Keep a Close Eye on
Tupperware Brands: The provider of design-centric preparation, storage, and serving solutions for home and kitchen along with cookware, microwave products, microfiber textiles and water-filtration related items, among others, has seen its shares soar more than 800% in the past year. The company has been focused on solidifying its core business across geographies. Further, it has been gaining on its efforts to augment its sales force’s dependence on digital methods as well as divide its sales force via segmentation in order to better address customer needs. Apart from this, the company’s cost-saving initiatives have been yielding favorable results. Impressively, the Zacks Consensus Estimate for this Zacks Rank #1 (Strong Buy) company’s current fiscal-year earnings per share (EPS) has surged 29.8% in the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: TUP
Albertsons Companies: The Zacks Consensus Estimate for this Zacks Rank #2 (Buy) company’s current fiscal-year EPS has climbed 1.7% in the past 30 days. Shares of the company have gained 17.2% in the past year. We note that this food and drug store company has been gaining on its efforts to improve store as well as e-commerce operations. With regard to fueling e-commerce operations, the company is making notable progress across pickup and delivery. Additionally, focus on enhancing efficiency, and expanding product assortment and mix is noteworthy. Apart from this, the company has been committed toward curtailing costs. Encouragingly, Albertsons has an estimated long-term earnings growth rate of 12%.
Price and Consensus: ACI
Chewy: The provider of pet food and treats, pet supplies and medications, and other pet-health products has been benefiting from the rising pet adoption rates amid the pandemic as people seek comfort and companionship. Apart from this, consumers’ increased preference for e-commerce mode of shopping, especially amid the pandemic, has been working well for this Zacks Rank #2 company. Markedly, Chewy has been focused on strengthening its customer base as well as curtailing expenses. The Zacks Consensus Estimate for the company’s current fiscal-year EPS has improved significantly from a loss of 7 cents per share to earnings of 17 cents per share over the past 30 days. Shares of the company have skyrocketed 83.8% in the past year.
Price and Consensus: CHWY
Newell Brands: Shares of this designer, manufacturer and distributor of consumer and commercial products have rallied 87.9% in the past year. The company’s Food, Commercial, Appliances & Cookware and Outdoor & Recreation categories have been gaining on increased consumer demand. Apart from this, Newell Brands is benefiting from increased online sales given consumers’ rising shift to the online platform amid the pandemic. Additionally, this Zacks Rank #3 (Hold) company’s focus on reducing SG&A expenses is noteworthy. The Zacks Consensus Estimate for Newell Brands’ current fiscal-year EPS has remained stable over the last 30 days. This Atlanta, GA-based company’s bottom line has beaten the consensus mark by 56.1%, on average, in the trailing four quarters.
Price and Consensus: NWL
Zacks Names “Single Best Pick to Double”
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.
Image: Bigstock
4 Consumer Products Stocks in Focus Despite Industry Headwinds
Players in the Zacks Consumer Products – Staples industry have been witnessing margin pressure due to elevated input and COVID-related costs. Also, increased investments in advertising and e-commerce among other growth initiatives raise concerns. Apart from this, moderation in the pandemic-led spike in demand is likely to impact year-over-year sales comparisons of a number of players.
Nonetheless, prudent saving measures, rising online sales and focus on portfolio enhancement and innovation have been working in favor of Newell Brands Inc. (NWL - Free Report) , Tupperware Brands Corporation (TUP - Free Report) , Albertsons Companies, Inc. (ACI - Free Report) and Chewy, Inc. (CHWY - Free Report) .
About the Industry
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 also provide batteries and lighting products. Apart from this, the space includes food store retailers – operating superstores, convenience stores, supermarkets and drugstores.
3 Trends Shaping the Future of the Consumer Products – Staples Industry
Pandemic-Led Demand Likely to Moderate: While a number of industry players gained from a bump in sales in most parts of 2020, the trend is likely to moderate in the near term. Notably, companies have been benefitting from burgeoning demand for staple items due to the pandemic-induced stock hoarding and elevated at-home consumption. However, with the vaccination drive gathering pace, consumers are likely to return to the old normal, which is expected to result in lower at-home consumption. We believe that these factors may weigh on year-over-year sales comparisons of a number of players in the consumer products – staples space. Incidentally, Kimberly-Clark Corporation’s (KMB - Free Report) first-quarter 2021 sales were hampered by unfavorable year-over-year comparisons owing to pandemic-led stock piling during the prior-year quarter as well as declines in the consumer tissue category. Further, management lowered its 2021 earnings and sales guidance to account for more challenging and volatile conditions in the short term.
Pressure on Margins: A number of players in the space are encountering high costs associated with COVID-19 such as increased pay, and elevated health and sanitization measures. Further, a spike in input costs as well as manufacturing costs is escalating margin pressure for some industry participants. Apart from this, higher advertising, e-commerce and other growth-related investments are a threat to margins. That being said, the companies’ solid cost-containment and restructuring plans should offer some respite.
Revenue-Driving Efforts: Consumer product players are focused on concerted revenue-boosting initiatives to squeeze out more from their operations. To this end, companies’ stringent focus on boosting e-commerce and digital operations has been a major driver, especially amid the pandemic, as increased social distancing has taken online shopping to another level. Also, innovation in areas that are witnessing increasing consumer interest has been adding to portfolio strength of companies like International Flavors & Fragrances Inc. (IFF - Free Report) . Further, industry players have been focused on optimizing portfolio through meaningful buyouts and divestitures, which enable them to increase focus on areas with higher growth potential. Apart from this, companies resort to prudent pricing strategies to gain market traction and fight cost-related challenges.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Consumer Products – Staples industry is housed within the broader Zacks Consumer Staples sector. It currently carries a Zacks Industry Rank #189, which places it in the bottom 24% 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 drab 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 bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually becoming less confident on this group’s earnings growth potential. Since the beginning of November 2020, the industry’s earnings estimate for 2020 has tumbled 21.1%.
Let’s look at the industry’s performance and current valuation.
Industry Versus Broader Market
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 dropped 5.2% over this period against with the S&P 500 index’s growth of 45.2%. Meanwhile, the broader sector has risen 21.2%.
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 24.43X compared with the S&P 500’s 22.93X and the sector’s 20.58X.
Over the last five years, the industry has traded as high as 25.45X, as low as 13.32X, and at the median of 18.11X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
4 Consumer Products Stocks to Keep a Close Eye on
Tupperware Brands: The provider of design-centric preparation, storage, and serving solutions for home and kitchen along with cookware, microwave products, microfiber textiles and water-filtration related items, among others, has seen its shares soar more than 800% in the past year. The company has been focused on solidifying its core business across geographies. Further, it has been gaining on its efforts to augment its sales force’s dependence on digital methods as well as divide its sales force via segmentation in order to better address customer needs. Apart from this, the company’s cost-saving initiatives have been yielding favorable results. Impressively, the Zacks Consensus Estimate for this Zacks Rank #1 (Strong Buy) company’s current fiscal-year earnings per share (EPS) has surged 29.8% in the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: TUP
Albertsons Companies: The Zacks Consensus Estimate for this Zacks Rank #2 (Buy) company’s current fiscal-year EPS has climbed 1.7% in the past 30 days. Shares of the company have gained 17.2% in the past year. We note that this food and drug store company has been gaining on its efforts to improve store as well as e-commerce operations. With regard to fueling e-commerce operations, the company is making notable progress across pickup and delivery. Additionally, focus on enhancing efficiency, and expanding product assortment and mix is noteworthy. Apart from this, the company has been committed toward curtailing costs. Encouragingly, Albertsons has an estimated long-term earnings growth rate of 12%.
Price and Consensus: ACI
Chewy: The provider of pet food and treats, pet supplies and medications, and other pet-health products has been benefiting from the rising pet adoption rates amid the pandemic as people seek comfort and companionship. Apart from this, consumers’ increased preference for e-commerce mode of shopping, especially amid the pandemic, has been working well for this Zacks Rank #2 company. Markedly, Chewy has been focused on strengthening its customer base as well as curtailing expenses. The Zacks Consensus Estimate for the company’s current fiscal-year EPS has improved significantly from a loss of 7 cents per share to earnings of 17 cents per share over the past 30 days. Shares of the company have skyrocketed 83.8% in the past year.
Price and Consensus: CHWY
Newell Brands: Shares of this designer, manufacturer and distributor of consumer and commercial products have rallied 87.9% in the past year. The company’s Food, Commercial, Appliances & Cookware and Outdoor & Recreation categories have been gaining on increased consumer demand. Apart from this, Newell Brands is benefiting from increased online sales given consumers’ rising shift to the online platform amid the pandemic. Additionally, this Zacks Rank #3 (Hold) company’s focus on reducing SG&A expenses is noteworthy. The Zacks Consensus Estimate for Newell Brands’ current fiscal-year EPS has remained stable over the last 30 days. This Atlanta, GA-based company’s bottom line has beaten the consensus mark by 56.1%, on average, in the trailing four quarters.
Price and Consensus: NWL
Zacks Names “Single Best Pick to Double”
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>