The Federal Reserve’s interest rate hikes have shown results as inflation has fallen significantly from the 40-year high reached last year. With inflation showing signs of cooling, consumer sentiment is expected to improve.
Therefore, it could be wise to buy fundamentally strong consumer stocks LVMH Moët Hennessy - Louis Vuitton, Société Européenne (LVMUY), Unilever PLC (UL), and Kimberly-Clark Corporation (KMB), given their impressive growth potential.
Before diving deeper into the fundamentals of these stocks, let’s discuss what’s happening in the consumer goods industry.
Inflation maintained its streak of easing. The consumer price index in April rose 4.9% annually, slightly less than the 5% estimate, and rose 0.4% sequentially, in line with estimates. The Fed hiked the interest rate by 25 basis points for the tenth time since last year, taking the benchmark borrowing rate to its highest level in 16 years.
During the first quarter, consumer spending, which represents more than half of the economy, drove the 1.1% annualized growth in GDP.
According to the University of Michigan, U.S. consumer sentiment declined to a six-month low in May as concerns that the political haggling over raising the government’s borrowing cap could trigger a recession. Also, consumers’ long-term inflation expectations jumped in May to their highest reading since 2011.
However, economists were not concerned about the decline in consumer sentiment and long-term inflation data. Navy Federal Credit Union’s corporate economist Robert Frick said, “We’ve seen consumer sentiment sink often since COVID scrambled the economy, but consumer spending has risen and now maintains a healthy level.”
“As for inflation, everyone is poor at predicting it long term, including consumers, and inflation expectations have little effect on spending decisions anyway.” Despite inflation and high borrowing costs, retail sales rose 0.4% in April, marking the first retail sales increase since January. In comparison, retail sales declined 0.7% in March.
Oxford Economics’ lead U.S. economist Oren Klachkin said, “The April retail sales report shows consumers remain inclined to spend though they are becoming more selective in their purchases.” Citigroup’s chief U.S. economist Andrew Hollenhorst said, “Today’s report should help reassure markets that consumer spending is not about to contract and will instead support at least modest continued economic growth.”
Considering these factors, it could be prudent to bank on these featured consumer stocks, given their solid upside potential.
Let’s take a closer look at their fundamentals.
LVMH Moët Hennessy - Louis Vuitton, Société Européenne (LVMUY)
Headquartered in Paris, France, LVMUY is a luxury goods company worldwide. The company offers champagne, wines, and spirits under the Clos des Lambrays, Dom Pérignon, Ruinart, Moét & Chandon, and other brands. It provides fashion and leather products under the Loewe, Louis Vuitton, Moynat, FENDI, Celine, Christian Dior, etc. It also offers perfumes, cosmetics, watches, jewelry, and custom-made yachts.
On March 1, 2023, LVMUY announced that it intends to buy back its shares for a maximum amount of one billion five hundred million euros over a period beginning March 1, 2023, till July 20, 2023.
In terms of the trailing-12-month gross profit margin, LVMUY’s 68.44% is 94.7% higher than the 35.16% industry average. Likewise, its 30.19% trailing-12-month EBITDA margin is 177.1% higher than the industry average of 10.90%. Furthermore, the stock’s 13.94% trailing-12-month levered FCF margin is 383.6% higher than the industry average of 2.88x.
For the fiscal year ended December 31, 2022, LVMUY’s total revenue increased 23% year-over-year to €79.18 billion ($86.11 billion). Its profit from recurring operations increased 23% year-over-year to €21.06 billion ($22.90 billion). Also, its group share of net profit rose 17% over the prior-year period to €14.08 billion ($15.31 billion).
For the first quarter ended March 31, 2023, LVMUY’s total revenue increased 17% year-over-year to €21.04 billion ($22.88 billion).
Analysts expect LVMUY’s revenue for the quarter ending June 30, 2023, to increase 19.2% year-over-year to $22.60 billion. For fiscal 2023, its EPS is expected to increase 28% year-over-year to $7.79. Over the past year, the stock has gained 57.6% to close the last trading session at $189.60.
LVMUY’s POWR Ratings reflect this positive outlook. LVMUY has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #10 out of 53 stocks in the Consumer Goods industry. It has a B grade for Stability, Sentiment, and Quality. Click here to see the other ratings of LVMUY for Growth, Value, and Momentum.
Unilever PLC (UL)
UL is based in London, the United Kingdom. It operates as a fast-moving consumer goods company. Its segments include Beauty & Wellbeing, Personal Care, Home Care, Nutrition, and Ice Cream.
In terms of the trailing-12-month EBIT margin, UL’s 16.19% is 142.8% higher than the 6.67% industry average. Likewise, its 18.34% trailing-12-month EBITDA margin is 77.3% higher than the industry average of 10.34%. Furthermore, the stock’s 12.72% trailing-12-month net income margin is 303.2% higher than the industry average of 3.16%.
UL’s turnover for the first quarter ended March 31, 2023, increased 7% year-over-year to €14.75 billion ($16.04 billion). Its underlying sales growth came in at 10.5%. Its Beauty & Wellbeing turnover rose 13.3% year-over-year to €3.09 billion ($3.36 billion). Also, its Home Care turnover increased 8.6% year-over-year to €3.35 billion ($3.30 billion).
For the quarter ending June 30, 2023, UL’s revenue is expected to increase 5.6% year-over-year to $16.93 billion. Its EPS for fiscal 2023 is expected to increase 2.6% year-over-year to $2.83. Over the past year, the stock has gained 18.4% to close the last trading session at $53.94.
UL’s POWR Ratings reflect solid prospects. It has an overall rating of B, translating to Buy in our proprietary rating system.
It is ranked #5 in the same industry. It has a B grade for Value, Stability, and Sentiment. To see the other ratings of UL for Growth, Momentum, and Quality, click here.
Kimberly-Clark Corporation (KMB)
KMB manufactures and markets 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 levered FCF margin, KMB’s 9.78% is 263.6% higher than the 2.69% industry average. Likewise, its 17.31% trailing-12-month EBITDA margin is 67.4% higher than the industry average of 10.34%. Furthermore, the stock’s 9.75% trailing-12-month net income margin is 209% higher than the industry average of 3.16%.
For the fiscal first quarter ended March 31, 2023, KMB’s net sales increased 2% year-over-year to $5.20 billion. Its cash provided by operations rose 200.5% year-over-year to $613 million. The company’s net income attributable to KMB’s increased 8.2% over the prior-year quarter to $566 million. Also, its EPS came in at $1.67, representing an increase of 7.7% year-over-year.
Analysts expect KMB’s EPS and revenue for the quarter ending June 30, 2023, to increase 7.8% and 0.9% year-over-year to $1.44 and $5.11 billion, respectively. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past three months, the stock has gained 14.4% to close the last trading session at $144.66.
KMB’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to Buy in our proprietary rating system.
Within the Consumer Goods industry, it is ranked #4. It has a B grade for Value, Stability, and Quality. Click here to see the other ratings of KMB for Growth, Momentum, and Sentiment.
What To Do Next?
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LVMUY shares were unchanged in premarket trading Wednesday. Year-to-date, LVMUY has gained 31.72%, versus a 8.10% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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