For Immediate Release
Chicago, IL – September 29, 2016 – Today, Zacks Equity Research discusses the Consumer Staples, part 2, including Wal-Mart Stores, Inc. (NYSE: (WMT - Analyst Report) -Free Report ) , McDonald's Corp. (NYSE: (MCD - Analyst Report) -Free Report), Target Corp. (NYSE: (TGT - Analyst Report) -Free Report ), TJX Companies, Inc. (NYSE: (TJX - Analyst Report) -Free Report ) and Molson Coors Brewing Co. (NYSE: (TAP - Analyst Report) -Free Report )
Industry: Consumer Staples, part 2
Backed by an improving economy, the consumer staples sector has been performing really well among most product categories over the past few months. Lower gas prices and increasing consumer confidence are doing the trick for a number of operators in this space. Importantly, consumer staples are benefiting from their perceived stability and defensive attributes in the current uncertain global backdrop.
Consumer confidence is now at its highest level since the recession. Consumer confidence index surged for the second consecutive month in September, signaling that the economy is improving. Stepped-up economic activities, improving business conditions, housing market recovery, a buildup in inventories and improving labor market are some favorable economic indicators that play a key role in raising buyers’ confidence.
Though the decline in oil prices caused worries related to global deflation and an economic slowdown, it eased consumer spending power. Notably, consumer spending accounts for more than two-thirds of U.S. economic growth.
A rise in wages has also increased household wealth and eventually boosted consumer spending. A number of retailers and fast food chains, including Wal-Mart Stores, Inc. (NYSE: (WMT - Analyst Report) -Free Report ) , McDonald's Corp. (NYSE: (MCD - Analyst Report) -Free Report), Target Corp. (NYSE: (TGT - Analyst Report) -Free Report ) and The TJX Companies, Inc. (NYSE: (TJX - Analyst Report) -Free Report ) have hiked wages.
Performance of Consumer Staples Sector
With respect to the broader economy, GDP growth was fairly weak in the first two quarters of the year, but is expected to come back in a meaningful way in the current period. While areas like manufacturing, exports and capital investments are suffering, many other aspects of the economic picture are showing a lot more strength.
Households are benefiting from steady labor market gains, with even wages starting to show momentum lately. The housing industry is another bright spot, promising steady momentum going forward. Many analysts see the U.S. economic outlook as stable and improving; better than most other parts of the world.
Market experts believe that consumer staples stocks have the potential to counter macro headwinds like the Brexit aftershocks, the Federal Reserve’s possible rate hike in December, impact of currency fluctuations and other global growth issues.
Companies in this space typically have tight margins, and a reduction in energy prices over the last two years is helping them to reduce costs. Going forward, consumer staples companies will continue to benefit from decreasing commodity and lower energy costs, which will aid profit margins.
Apart from this, let’s discuss some of the key factors that have been driving consumer staples stocks in the past few quarters, despite global worries, and also have the potential to boost earnings in the near term.
In a crowded and competitive space, consumer product companies need to regularly innovate and upgrade their brands to create differentiated value propositions and to remain successful. In fact, companies with innovative products in their pipeline will be in a position to benefit.
Global brewer Molson Coors Brewing Co. (NYSE: (TAP - Analyst Report) -Free Report ) has also been launching new products to boost revenues and market share, which help it to offset the impact of declining volumes. Molson Coors also invests in marketing and advertising to create brand awareness.
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