Deutsche Bank Likes Consumer Staples, Stock Market Bubble Or Not

Deutsche Bank likes consumer staples stocks given low rates, sustainable earnings algorithms, recent M&A bid and consistent — albeit low — growth.

"Fundamentals remain tolerable, f/x headwinds are easing despite Brexit, commodities are benign and cash flow generation is strong — keeping investors in the group until clearer opportunities emerge elsewhere," analyst Bill Schmitz wrote in a note.

Schmitz said, despite higher valuation, the "group is likely to remain a port in a storm."

The Sector

The group is expected to benefit from pricing, driving mid- to high-single-digit growth in developing markets. Developed markets, driven by balance of volume and price/mix, should expand low singles.

Margins should get a boost from benign commodity costs, which should in turn ease currency headwinds and stimulate significant cost and productivity savings.

Related Link: Unilever's Acquisition Of Dollar Shave Club Offers "Unique Consumer And Data Insights"

Schmitz noted that unfavorable weather impact beverage names like The Coca-Cola Co KO and seasonal businesses at Spectrum Brands Holdings, Inc. SPB and Clorox Co CLX. About 3–4 percent organic growth for the group is likely for most.

That said, the analyst added that Procter & Gamble Co PG "is the notable exception given ongoing share losses ahead of well telegraphed step up in marketing and innovation support."

"As significant pricing starts to lap in many emerging markets and categories, industry should start to show improved volume trends," Schmitz highlighted.

"As an investor, this change in strategic priorities is far healthier to the sustainable growth many have grown accustomed to from these stocks over time, even if consumption trends remain stubbornly below pre-recession levels despite fits and starts," the analyst added.

Price Targets And Ratings

As such, Schmitz has raised the price targets of Colgate-Palmolive Company CL by $2 to $75; Clorox by $4 to $134; International Flavors & Fragrances Inc IFF by $6 to $130; Kimberly Clark Corp KMB by $2 to $132; Nu Skin Enterprises, Inc. NUS by $10 to $55 and P&G by $7 to $92.

The analyst has a Hold rating on Colgate-Palmolive, Clorox, IFF and Kimberly Clark, while he remains Buy-rated on Coke, Spectrum Brands, Nu Skin and P&G.

Full ratings data available on Benzinga Pro.

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Posted In: Analyst ColorLong IdeasPrice TargetCommoditiesReiterationMarketsAnalyst RatingsTrading Ideasconsumer staplesDeutsche Bank
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