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4 Consumer Product Stocks to Watch Despite Industry Hurdles

Players in the Zacks Consumer Products – Staples industry have been struggling with cost inflation induced by the escalated costs of inputs, transport and labor. Moreover, escalated SG&A costs are a concern for some industry players.

However, strategic pricing efforts, favorable demand and a focus on portfolio enhancement and innovation are working well for players like Kimberly-Clark Corporation KMB, Albertsons Companies, Inc. ACI, Ollie's Bargain Outlet Holdings, Inc. (OLLI) and Grocery Outlet Holding Corp. GO.


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 industry participants also provide batteries and lighting products, whereas some offer pet food and treats, pet supplies, pet medications and pet services.  Companies in the Consumer Products – Staples universe offer products to supermarkets, drug/grocery stores, department stores, warehouse clubs, mass merchandisers and other retail outlets. Some companies sell products to manufacturers of perfumes and cosmetics, hair and other personal care products. Products are also sold through other distributors and the fast-growing e-commerce channel.

3 Trends Shaping the Future of the Consumer Products - Staples Industry

Inflated Costs: Industry participants are grappling with input cost inflation. Companies are seeing increased labor, transportation and freight costs due to tough market conditions. Several companies are bearing the brunt of supply-chain disruptions. Many companies had projected input cost inflation to persist in the near term in their last quarterly release. Apart from this, escalated SG&A costs, costs related to digital development and increased wages are weighing on margins. That said, restructuring plans and pricing actions should offer some respite.

Volatile Currency Movements: Several industry players remain vulnerable to unfavorable currency movements due to their exposure to international markets. This is because a strengthening U.S. dollar may require a company to either raise prices or contract profit margins in locations outside the United States. Some industry players, such as Kimberly-Clark, expect adverse currency fluctuations to affect their performances in 2023.

Revenue-Driving Efforts: Consumer product players are focused on revenue-boosting initiatives to squeeze out more from their operations. To this end, companies’ solid focus on boosting e-commerce and digital operations has been a major driver to date. Also, innovation in areas witnessing increasing consumer interests enhanced the portfolio strength of companies. Industry players have been optimizing portfolios through meaningful buyouts and divestitures for a while, enabling them to intensify their focus on areas with higher-growth potential.

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Zacks Industry Rank Indicates Dim Prospects

The Zacks Consumer Products – Staples industry is housed within the broader Zacks Consumer Staples sector. It currently carries a Zacks Industry Rank #195, which places it in the bottom 22% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates dull near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform 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 a 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 about this group’s earnings growth potential. Since the beginning of December 2023, the industry’s earnings estimate for 2023 has declined 3.8%.

Let’s look at the industry’s performance and current valuation.

Industry vs. 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 declined 23% over this period compared with the S&P 500 Index’s growth of 2.2%. Meanwhile, the broader sector has tumbled 7.6%.

One-Year Price Performance

Industry's Current Valuation

On the basis of forward 12-month price-to-earnings (P/E), commonly used for valuing consumer staple stocks, the industry is currently trading at 16.16X compared with the S&P 500’s 18.76X and the sector’s 17.46X.

Over the last five years, the industry has traded as high as 36.24X, as low as 14.86X and at the median of 20.04X, as the chart below shows.

Price-to-Earnings Ratio (Past 5 Years)

4 Consumer Product Stocks to Keep a Close Eye On

Ollie’s Bargain: This value retailer of brand-name merchandise is benefiting from its focus on store productivity and the expansion of its customer reward program, Ollie's Army. OLLI's business model of “buying cheap and selling cheap” and cost-containment efforts also bode well.

This Zacks Rank #2 (Buy) stock has rallied 16.2% in a year. The Zacks Consensus Estimate for Ollie’s Bargain’s current fiscal-year earnings per share (EPS) has increased by a penny to $2.57 over the past 60 days. Ollie’s Bargain currently has an estimated long-term earnings growth rate of 21.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price and Consensus: OLLI

Kimberly-Clark: This personal care and consumer tissue product company has been gaining from its three growth pillars. These include a focus on improving its core business in developed markets, speeding up growth in the Personal Care segment in developing and emerging markets and enhancing digital and e-commerce capacities. Also, the Zacks Rank #3 (Hold) company’s pricing and saving initiatives have been aiding amid cost inflation.

The Zacks Consensus Estimate for KMB’s current fiscal-year bottom line has improved from $6.13 to $6.19 in the past 30 days. Kimberly-Clark has an estimated long-term earnings growth rate of 7%. Shares of the company have risen 2.4% in the past year.

Price and Consensus: KMB

Albertsons Companies: This food and drug store entity has been benefiting from its focus on providing efficient in-store services, enhancing digital and omnichannel capabilities and efforts to bolster productivity. Albertsons Companies’ efforts to boost assortments continue elevating customers’ experience. ACI has an estimated long-term earnings growth rate of 4.9%.

The Zacks Consensus Estimate for ACI’s current fiscal-year EPS has been unchanged at $2.80 in the past 30 days. Shares of this Zacks Rank #3 company have declined 34.3% in the past year.

Price and Consensus: ACI

Grocery Outlet Holding: The Zacks Rank #3 company’s opportunistic purchasing strategy, marketing efforts, store-growth endeavors and e-commerce initiatives to deepen the customer reach appear encouraging. Grocery Outlet’s flexible sourcing and distribution business model, which helps it offer products at exceptional values, also bodes well.

The Zacks Consensus Estimate for GO’s current fiscal-year EPS has risen by 2 cents to 99 cents in the past 30 days. GO has an estimated long-term earnings growth rate of 10.7%. This Zacks Rank #3 stock has declined 23.8% over the past year.

Price and Consensus: GO

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

Kimberly-Clark Corporation (KMB) : Free Stock Analysis Report

Albertsons Companies, Inc. (ACI) : Free Stock Analysis Report

Ollie's Bargain Outlet Holdings, Inc. (OLLI) : Free Stock Analysis Report

Grocery Outlet Holding Corp. (GO) : Free Stock Analysis Report

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