Consumer spending has remained resilient. With inflation easing and the Fed expected to cut interest rates as soon as May next year, the demand for consumer goods will likely grow.
Amid this favorable backdrop, it could be wise to consider investing in fundamentally strong consumer stocks such as The Procter & Gamble Company (PG) and Kimberly-Clark Corporation (KMB). However, not all consumer goods stocks will likely gain from rising consumer spending and easing inflation. Peloton Interactive, Inc. (PTON) is expected to underperform because of its fundamental weakness and, thus, is best avoided now.
Before delving deeper into the fundamentals of the three stocks, let’s take a closer look at why the consumer goods industry is worth looking at now.
The Consumer Price Index (CPI) barely changed in October, with a 3.2% increase from a year ago, down from the 3.7% rise in September. Inflation is down significantly from last year’s 9.1% peak in June. Meanwhile, core CPI hit a two-year low annually. Core CPI showed an increase of 0.2% sequentially and 4% year-over-year, both coming below analyst estimates.
With inflation easing and the Fed expected to start cutting rates next year, confidence in the consumer industry's growth has been boosted. U.S. consumer confidence rose in November after three straight months of sequential declines. The consumer confidence index rose to 102.0 in November.
Consumer spending has also been robust so far despite the macroeconomic challenges. Consumer spending rose 0.2% in October, while personal income increased 0.2%.
The consumer goods industry is reaping the benefits of technology. AI has transformed the consumer goods industry, improving supply chain, inventory, demand prediction, marketing, and customer service.
Deloitte expects holiday retail sales to increase between 3.5% and 4.6% this year. The global consumer goods industry is projected to reach $224.33 billion by 2032, growing at a CAGR of 7.8%.
Considering these conducive trends, let’s analyze the fundamentals of the three Consumer Goods picks, beginning with the third one from the investment point of view.
Stock #3: Peloton Interactive, Inc. (PTON)
PTON operates an interactive fitness platform in North America and internationally. The company offers connected fitness products with a touchscreen that streams live and on-demand classes under the Peloton Bike, Peloton Bike+, Peloton Tread, Peloton Tread+, Peloton Guide, and Peloton Row names.
In terms of the trailing-12-month Capex/Sales, PTON’s 1.54% is 50.9% lower than the 3.14% industry average. Likewise, its 0.89x trailing-12-month asset turnover ratio is 10.8% lower than the industry average of 0.99x.
PTON’s adjusted net revenue for the first quarter ended September 30, 2023, decreased 3.4% year-over-year to $595.50 million. The company’s loss from operations narrowed 64.6% year-over-year to $132.30 million.
Also, its net loss attributable to Class A and Class B common stockholders and t loss per share attributable to common stockholders narrowed 61% and 63.3% over the prior year’s quarter to $159.30 million and $0.44, respectively.
Analysts expect PTON’s revenue for the quarter ending December 31, 2023, to decrease 7.4% year-over-year to $734.14 million, while its EPS for the same quarter is expected to remain negative. It failed the consensus EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has declined 56.2% to close the last trading session at $5.66.
PTON’s weak fundamentals are reflected in its POWR Ratings. It has an overall rating of D, equating to a Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #45 out of 53 stocks in the Consumer Goods industry. It has an F grade for Stability and Sentiment. To access PTON’s grades for Growth, Value, Momentum, and Quality, click here.
Stock #2: The Procter & Gamble Company (PG)
PG provides branded consumer packaged goods worldwide. It operates through five segments: Beauty, Grooming, Health Care, Fabric and Home Care, and Baby, Feminine, and Family Care.
In terms of the trailing-12-month gross profit margin, PG’s 49.25% is 45.3% higher than the 33.89% industry average. Its 12.43% trailing-12-month Return on Total Assets is 157.3% higher than the 4.83% industry average. Additionally, its 33.19% trailing-12-month Return on Common Equity is 184.1% higher than the 11.68% industry average.
PG’s net sales for the first quarter ended September 30, 2023, increased 6.1% year-over-year to $21.87 billion. The company’s gross profit increased 16.4% year-over-year to $11.37 billion. Its net earnings attributable to PG rose 14.8% year-over-year to $4.52 billion. Additionally, its net earnings per share came in at $1.83, representing a 16.6% increase over the prior-year quarter.
For the quarter ending December 31, 2023, PG’s EPS and revenue are expected to increase 7.4% and 4.4% year-over-year to $1.71 and $21.69 billion, respectively. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 11.6% to close the last trading session at $153.52.
PG’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Stability and a B for Sentiment and Quality. It is ranked #12 in the same industry. To see PG’s Growth, Value, and Momentum ratings, click here.
Stock #1: Kimberly-Clark Corporation (KMB)
KMB and its subsidiaries manufacture and market personal care and consumer tissue products worldwide. It operates through three segments: Personal Care, Consumer Tissue, and K-C Professional.
In terms of the trailing-12-month net income margin, KMB’s 8.63% is 76.2% higher than the 4.90% industry average. Likewise, its 10.28% trailing-12-month levered FCF margin is 111.6% higher than the 4.86% industry average. Furthermore, the stock’s 315.49% trailing-12-month Return on Common Equity is significantly higher than the 11.68% industry average.
KMB’s total net sales for the third quarter ended September 30, 2023, rose 1.6% year-over-year to $5.13 billion. Its gross profit rose 19.1% year-over-year to $1.84 billion. The company’s non-GAAP net income attributable to KMB increased 24.2% year-over-year to $590 million. Also, its non-GAAP EPS came in at $1.74, representing an increase of 24.3% year-over-year.
For the quarter ending December 31, 2023, KMB’s EPS and revenue are expected to increase 0.2% and 0.8% year-over-year to $1.54 and $5 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past month, the stock has gained 3.5% to close the last trading session at $123.73.
KMB’s solid prospects are reflected in its POWR Ratings. It has an overall rating of B, translating to a Buy in our proprietary rating system.
It has a B grade for Stability and Quality. It is ranked #5 in the Consumer Goods industry. In total, we rate KMB on eight different levels. Beyond what we stated above, we also have given KMB grades for Growth, Value, Momentum, and Sentiment. Get all the KMB’s ratings here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
PG shares were trading at $152.52 per share on Friday morning, down $1.00 (-0.65%). Year-to-date, PG has gained 3.19%, versus a 20.92% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
PTON, KMB or PG: Which Consumer Stock Is the Better Buy? StockNews.com
