The consumer goods industry experienced an unprecedented demand amid the COVID-19 pandemic, bolstered by a spike in e-commerce buying. Furthermore, the lingering fear of shortages led to the stocking up (hoarding) of essential items. And even as the vaccinated percentage of the population rises each day, this trend is likely to continue given accelerating digital dependency and shifting consumer preferences.
The increasing demand for personal care items, such as hand sanitizers and disinfectants, coupled with significant at-home consumption of packaged products, should keep driving the industry’s growth. The industry has been enjoying favorable investor sentiment, which is evident in the iShares U.S. Consumer Goods ETF (IYK) 51.9% returns over the past year, compared to SPDR S&P 500’s (SPY) 45.7% gains over this period.
The global fast-moving consumer goods (FMCG) market is expected to grow at a CAGR of around 5.6% over the next six years to reach $16781.5 billion by 2027. With the recovery of the economy from pandemic-led damages and improving standards of living as federal recovery checks and rising employment come to bear, consumer goods stocks should keep performing well. Analysts expect The Procter & Gamble Company (PG) to deliver stellar returns in the coming months, given its strong fundamentals. However, they recommend avoiding Unilever PLC (UL) now, as the company has reported lower earnings compared to its peers.
Stock to Buy:
The Procter & Gamble Company (PG)
Founded in 1837, PG is one of the leading global brands that provides branded consumer packaged goods to consumers. It operates in five segments: Beauty; Grooming; Health Care; Fabric & Home Care; and Baby, Feminine & Family Care. The company sells its products through mass merchandisers, e-commerce, grocery stores, membership club stores, drug stores, and professional channels.
This month, Charmin, a PG product, unveiled its BRB Bot prototype, which is the first-ever bot that accesses the camera feed and uses machine learning, natural language processing and tone analysis to listen to video calls and react appropriately in real-time. With people being forced to adapt to living and working virtually over the past year, this digital doppelganger could be adopted by many.
In its fiscal third quarter, ended March 31, PG reported a $9.19 million gross profit, representing an 8% year-over-year increase, while the company’s operating income grew 10% from the year-ago value to $3.79 billion. Its net earnings for the fiscal quarter increased 12% year-over-year to $3.27 billion over the same period. PG’s EPS grew 13% from the year-ago value to $1.26.
A $5.63 consensus EPS estimate for 2021 represents a 10% improvement year-over-year. The $18.32 billion consensus revenue estimate for the current year indicates a 3.5% increase year-over-year. The stock has gained 20.9% over the past year.
Of the 11 Wall Street analysts that rated PG’s stock, 6 rated it “Buy.”
Stock to Avoid:
Unilever PLC (UL)
Headquartered in London, UL is one of the world’s largest, fast-moving consumer goods companies. The company operates in three segments: Beauty & Personal Care, Foods & Refreshment and Home care. Its products are available in more than 190 countries and it has over 400 household brands.
Last month, UL unveiled its plan to acquire Onnit, a holistic wellness and lifestyle company, based in Austin, Texas. UL is aligned with Onnit’s vision to improve the health and wellness of consumers with scientifically proven solutions. Although Onnit complements UL’s growing portfolio of innovative wellness and supplement brands, the acquisition is bound to increase UL’s expenses.
UL’s turnover decreased 2.4% year-over-year to €50.72 billion ($61.26 billion) for the full year, ended December 31. The company’s operating profit declined 4.6% from its year-ago value to €8.30 billion ($10.02 billion). And its profit before taxation came in at €8 billion ($9.66 billion), representing a 3.5% decline year-over-year.
Analysts expect UL’s EPS to decline at the rate of 6.7% per annum to $2.97 in its fiscal year 2021. The stock has declined 4% over the past six months.
The only Wall Street analyst who rated the stock has rated it “ Sell.”
PG shares were trading at $138.01 per share on Friday afternoon, up $0.29 (+0.21%). Year-to-date, PG has gained 0.42%, versus a 11.79% rise in the benchmark S&P 500 index during the same period.
About the Author: Samiksha Agarwal
Samiksha Agarwal has always had a keen interest in financial markets. This has led her to a career as a financial journalist. Through her extensive knowledge of fundamental analysis, her goal is to help investors identify untapped investment opportunities in the stock market.
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