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Soap & Cleaning Materials Stocks Afloat Amid Coronavirus Crisis

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Companies involved in the manufacturing and supply of fast-moving consumer goods (FMCG), including personal care, household and specialty products, mainly make up the Zacks Soap and Cleaning Materials industry. The personal care segment comprises skin and hair care products, deodorants, and oral care items. The household category covers home care products, including fabric and laundry care, house cleaning agents, bleaching products, air care, dishwashing liquids and other cleaning items.

The product range of these companies extends to baby and feminine care, such as baby wipes, diapers, paper towels, tissues and toilet paper. Additionally, some companies offer food and refreshments, including soups, bouillons, sauces, snacks, mayonnaise, salad dressings, margarines, spreads, ice creams and tea-bag beverages. The industry also includes companies offering pet nutrition products.

These companies market and sell products through supermarkets, mass merchandisers, grocery stores wholesale clubs, distributors, wholesalers, department stores, drugstores, convenience stores, home stores, baby stores, specialty beauty stores, dollar stores and pet stores, and other specialty stores as well as through websites. Pet nutrition products are mainly distributed via pet supply retailers and veterinarians.

Here are the three major industry themes:

  • The global novel coronavirus menace has jeopardized the global economy, not sparing any sector. However, the Soaps and Cleaning Materials industry seems to benefitting from the cleaning frenzy among consumers to fight off the virus. The outbreak has significantly boosted demand for hand sanitizers, toilet paper, surface cleaners, disinfecting wipes and other household cleansing essentials. The pandemic presents both an opportunity and a challenge for hygiene products companies. The companies in the business are vying to showcase how their products can help deal with the current public health crisis. In general, the FMCG industry enjoys inelastic demand as soap and cleaning products are staple goods. This makes the industry defensive in nature.
     
  • The industry players mostly thrive on a positive consumer environment, backed by favorable consumer spending and overall economic growth. The industry players are poised to benefit from efforts to boost productivity, product launches and enhanced focus on investments and innovation. Additionally, the players are undertaking pricing, packaging and marketing initiatives, and restructuring actions — including acquisitions and divestitures, accelerated investments in brands, cost-based pricing strategy and expansion into new markets and channels. These are likely to aid the sales graphs of consumer product companies. Developing products with eco-friendly and natural ingredients is another area of focus among industry players as consumers are turning environment-friendly and health-conscious. This strategy has considerably pushed up demand and market share.
     
  • The Soaps and Cleaning Materials industry players are grappling with escalating raw material and transportation costs, much like the others in the broader Consumer Staples sector. Cost elevation along with U.S.-China trade war concerns, uncertain global markets, higher operating expenses due to advertising investments, and unfavorable foreign currency rates is eating into revenues and margins. Furthermore, heightened competition has resulted in increased pricing pressure due to aggressive promotional activities, which is hurting margins. Consequently, players in the industry are making notable progress on cost-containment initiatives to overcome operational shortcomings and improve margins. These initiatives include cutting costs in areas like supply chain, research & development, marketing and overheads.


Zacks Industry Rank Indicates Bright Prospects

The Zacks Soaps and Cleaning Materials industry, which is housed within the broader Zacks Consumer Staples sector, currently carries a Zacks Industry Rank #51. This rank places it at the top 20% 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.

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. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. In the past six months, the industry’s earnings estimates for the current year have moved up 0.5%.

Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry Outperforms Shareholder Returns

The Zacks Soap and Cleaning Materials industry has outperformed both the S&P 500 and its own sector in the past year.

While stocks in this industry have collectively gained 2.7%, the Zacks S&P 500 composite has declined 16.8%. Meanwhile, the Zacks Consumer Staples sector has witnessed a decline of 17.7% over this period.

One-Year Price Performance


Soaps and Cleaning Materials Industry’s 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 20.57X compared with the S&P 500’s 14.12X and the sector’s 15.49X.

Over the last five years, the industry has traded as high as 23.53X, as low as 17.89X, and at the median of 21.01X, as the chart below shows.

Price-to-Earnings Ratio (Past 5 Years)


Bottom Line

The global COVID-19 crisis is a real test for the Soap and Cleaning Materials industry, as cleansing products might play a vital role in surviving this situation. The near-term prospects of the Soap and Cleaning Materials industry look buoyant as demand for cleaning agents and bleaches is bound to rise in the wake of the virus eruption. This makes the industry a defensive play, while the global markets continue to spiral down. However, the industry is grappling with increased cost burden, higher operating expenses due to increased advertising investments and unfavorable currency rates. Nevertheless, its efforts to fight back with increased investments in brands, e-commerce growth, focus on the naturals range, and effective execution of pricing and productivity initiatives should pay off.

While none of the stocks in the Zacks Soap and Cleaning Materials universe currently hold a Zacks Rank #1 (Strong Buy), we have mentioned one stock with a Zacks Rank #2 (Buy) and three more with a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

Let’s take a look at them.

The Clorox Company (CLX - Free Report) : The stock of this Oakland, CA-based company has rallied 21.7% in the past year. The Zacks Consensus Estimate for its current-year EPS has moved up 0.6% in the last seven days. The company currently has a Zacks Rank #2.

Price and Consensus: CLX


The Procter & Gamble Company (PG - Free Report) : The Cincinnati, OH-based consumer goods giant’s consensus EPS estimate for the current fiscal year has been stable in the last seven days. This Zacks Rank #3 stock has risen 8.2% over the past year.

Price and Consensus: PG


Church & Dwight Co. Inc. (CHD - Free Report) : The stock of this Ewing, NJ-based company has moved up 1.4% in the past year. The Zacks Consensus Estimate for its current-year EPS has stayed stable in the past 30 days. The company currently has a Zacks Rank #3.

Price and Consensus: CHD


Colgate-Palmolive Company (CL - Free Report) : The stock of this New York City-based company has moved 1.2% north in the past year. The Zacks Consensus Estimate for its current-year EPS has been stable in the past 30 days. The company currently has a Zacks Rank #3.

Price and Consensus: CL


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