Despite concerns about a recession, strong consumer spending could bode well for the consumer goods industry. To that end, investors could look to buy fundamentally strong consumer stocks The Procter & Gamble Company (PG), Edgewell Personal Care Company (EPC), and ACCO Brands Corporation (ACCO) this week.
J.P. Morgan strategist, Marko Kolanovic, stated, “While the economy’s recent resilience may delay the onset of a recession, we believe that most of the lagged effects of the past year’s monetary tightening have yet to be felt, and ultimately a recession will likely be necessary to return inflation to target.”
Although investors fear an impending recession, investing in sectors less prone to economic downturns could be strategic. The consumer goods industry generates steady profits thanks to the inelastic demand for its products. Moreover, amid inflationary pressures, these businesses are able to pass on high input costs to consumers, allowing them to keep their profit margins.
With the growing number of mobile users and a rising consumer preference for e-commerce, the online segment for consumer goods is expected to grow significantly over the next few years. The online distribution channel for consumer goods is expected to record an 8.3% CAGR from 2020 to 2027.
The Fast Moving Consumer Goods (FMCG) and Consumer Packaged Goods (CPG) market is expected to grow between 2023 and 2030 at a CAGR of 7.5%. Additionally, investors’ interest in industrial stocks is evident from the iShares US Consumer Staples ETF’s (IYK) 3.3% returns over the past three months.
Given these factors, investors could look to buy the featured consumer stocks. Let’s take a closer look at their fundamentals.
The Procter & Gamble Company (PG)
PG provides branded consumer packaged goods worldwide. It operates through five segments: Beauty; Grooming; Health Care; Fabric & Home Care; and Baby, Feminine & Family Care.
In terms of the trailing-12-month EBIT margin, PG’s 22.86% is 242.9% higher than the 6.67% industry average. Its 14.10% trailing-12-month levered FCF margin is 373% higher than the 2.98% industry average. Likewise, its 17.69% trailing-12-month net income margin is 460.6% higher than the industry average of 3.16%.
On June 20, 2023, PG launched a new haircare microsite #HairDNA exclusively on Lazada, Southeast Asia’s pioneer e-commerce platform.
The new venture is anticipated to deliver personalized haircare solutions, cementing the company’s commitment to driving category growth and delivering the best possible haircare experience. Moreover, this online presence could streamline the shopping process for its eCommerce shoppers.
PG’s net sales for the third quarter ended March 31, 2022, increased 3.5% year-over-year to $20.07 billion. The company’s gross profit increased 6.7% year-over-year to $9.66 billion. Its operating income increased 5.6% year-over-year to $4.25 billion. Additionally, its EPS came in at $1.37, representing a 3% increase over the prior-year quarter.
Analysts expect PG’s EPS and revenue for the quarter ending June 30, 2023, to increase 9% and 2.3% year-over-year to $1.32 and $19.97 billion, respectively. It has a commendable earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 9.5% to close the last trading session at $148.46.
PG’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the Consumer Goods industry, it is ranked #12 out of 53 stocks. It has an A grade for Stability and a B for Sentiment and Quality.
To see the additional ratings of PG for Growth, Value, and Momentum, click here.
Edgewell Personal Care Company (EPC)
EPC manufactures and markets personal care products worldwide. It operates through three segments: Wet Shave, Sun and Skin Care, and Feminine Care.
In terms of the trailing-12-month EBIT margin, EPC’s 10.60% is 59% higher than the 6.67% industry average. Its 5.53% trailing-12-month levered FCF margin is 85.6% higher than the 2.98% industry average. Likewise, its 4.27% trailing-12-month net income margin is 35.3% higher than the industry average of 3.16%.
EPC’s non-GAAP operating income increased 33.8% year-over-year to $62.50 million for the fiscal second quarter that ended March 31, 2023. The company’s adjusted EBITDA increased 12.6% year-over-year to $83 million. In addition, its non-GAAP net earnings increased 7.4% year-over-year to $29 million. Its non-GAAP EPS came in at $0.56, representing a 12% increase over the prior-year quarter.
EPC’s EPS for the quarter ending December 31, 2023, is expected to increase 16.3% year-over-year to $0.36. Its revenue for the quarter ending June 30, 2023, is expected to increase 3.3% year-over-year to $644.45 million. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
Over the past year, the stock has gained 24% to close the last trading session at $42.35.
EPC’s POWR Ratings reflect its solid prospects. It has an overall rating of B, equating to a Buy in our proprietary rating system. The stock is ranked #14 in the same industry.
The stock has a B grade for Growth and Value. Click here to see the additional ratings of EPC for Momentum, Stability, Sentiment, and Quality.
ACCO Brands Corporation (ACCO)
ACCO designs, manufactures, and markets consumer, school, technology, and office products. It operates through three segments: ACCO Brands North America, ACCO Brands EMEA, and ACCO Brands International.
In terms of the trailing-12-month levered FCF margin, ACCO’s 8.21% is 57.5% higher than the 5.21% industry average.
For the fiscal first quarter ended March 31, 2023, ACCO’s adjusted operating income increased 7.5% year-over-year to $24.30 million. In addition, its adjusted EPS came in at $0.09.
ACCO’s EPS and revenue for the quarter ending September 30, 2023, are expected to increase 21.3% and 3.7% year-over-year to $0.30 and $503.50 million, respectively. Over the past three months, the stock has fallen marginally to close the last trading session at $4.98.
ACCO’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. It is ranked #11 in the Consumer Goods industry. The stock has a B grade for Value and Sentiment. Click here to see the additional ratings of ACCO for Growth, Momentum, Stability, and Quality.
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PG shares were trading at $147.62 per share on Monday morning, down $0.84 (-0.57%). Year-to-date, PG has declined -1.37%, versus a 14.46% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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