While last year’s blues negatively impacted most sectors, the consumer goods industry has proficiently weathered the strong headwinds of sky-high inflation and the Fed’s aggressive interest rate hikes. BofA’s recent report indicates that 2022 was a solid year for consumer spending, with total credit and debit card spending per household up 5.9% year-over-year.
In addition, U.S. consumers got a reprieve from soaring prices in December as the consumer price index dipped 0.1% last month after gaining 0.1% in November. JPMorgan Chase & Co. (JPM) CEO Jamie Dimon said, “The U.S. economy currently remains strong with consumers still spending excess cash and businesses [are] healthy.”
Despite the encouraging signs, the battle against inflation is far from victory. With the central bank looking unlikely to pivot anytime soon, fears are mounting on investors that a recession could be in the cards this year.
Such economic conditions could fare well for consumer goods companies, which tend to perform well regardless of economic turbulence since consumers tend to buy necessities such as food and household products at a consistent level.
Given the industry’s defensive nature, adding the fundamentally strong stock Procter & Gamble Company (PG) to your portfolio could be wise. On the other hand, Roku, Inc. (ROKU) and Peloton Interactive, Inc. (PTON) should be avoided due to their weak financials and poor growth prospects.
Stock to Buy:
Procter & Gamble Company (PG)
PG offers branded consumer packaged goods to consumers across the world. It operates through Beauty, Grooming, Health Care, Fabric & Home Care, and Baby, Feminine & Family Care segments.
For the fiscal 2023 first quarter ended September 30, 2022, PG’s healthcare sales grew 3% year-over-year to $2.76 billion, while its net sales increased 1% year-over-year to $20.61 billion. The company’s net earnings and EPS amounted to $3.96 billion and $1.57, respectively, for the same period.
As of September 30, 2022, the company’s current assets stood at $22.52 billion, compared to $21.65 billion as of June 30, 2022.
PG has raised its dividends for 66 consecutive years. It pays a $3.65 per share dividend annually, which translates to a 2.42% yield on the current price. Its four-year average dividend yield is 2.45%. Its dividend payments have grown at CAGRs of 6.9% and 5.7% over the past three and five years, respectively.
Analysts expect the company’s EPS and revenue for the fiscal year ending June 2024 to increase 7.4% and 3.8% year-over-year to $6.28 and $83.20 billion, respectively. Furthermore, PG surpassed its consensus EPS in three of the four trailing quarters.
Shares of PG have gained 19.5% over the past three months to close the last trading session at $150.88.
PG’s POWR Ratings reflect its solid prospects. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Stability and a B for Sentiment and Quality. It is ranked #12 out of 57 stocks in the Consumer Goods industry. Click here to see the other ratings of PG for Growth, Value, and Momentum.
Stocks to Avoid:
Roku, Inc. (ROKU)
Roku operates a TV streaming platform through two segments: Platform and Player. Its platform enables users to discover and access various streaming content and content publishers to build and monetize large audiences. ROKU’s streaming players and TV-related audio devices are available through direct retail sales and licensing arrangements with service operators.
For the fiscal third quarter that ended September 30, 2022, ROKU’s operating loss came in at $146.99 million compared to an operating income of $68.85 million in the prior-year period. The company’s net loss stood at $122.18 million, compared to a net income of $68.94 million in the year-ago period.
Also, its loss per share came in at $0.88 versus an EPS of $0.52 in the year-ago period. In addition, its adjusted EBITDA loss came in at $34.40 million, compared to an adjusted EBITDA of $130.10 million in the year-ago period.
In terms of its forward Price/Sales, ROKU is trading at 2.31x, 75.8% higher than the industry average of 1.31x. The stock’s forward Price/Book multiple of 2.72 is 31.7% higher than the industry average of 2.06.
Analysts expect ROKU’s EPS for fiscal 2022 and 2023 to be negative. Its revenue estimate of $804.61 million for the fourth quarter ended December 31, 2022, indicates a decline of 7% year-over-year. The stock has lost 69.8% over the past year to close the last trading session at $50.82.
ROKU’s POWR Ratings reflect this bleak outlook. It has an overall rating of F, equating to a Strong Sell in our proprietary rating system.
It has an F grade for Growth and a D for Momentum, Stability, and Sentiment. Within the Consumer Goods industry, it is ranked #53 out of 57 stocks. To see the other ratings of ROKU for Value and Quality, click here.
Peloton Interactive, Inc. (PTON)
PTON offers interactive fitness products through two segments: Connected Fitness Products and Subscription. It sells connected fitness products with touchscreens that stream live and on-demand classes under the brand names Peloton Bike, Peloton Bike+, Peloton Tread, and Peloton Tread+.
PTON’s total revenue decreased 23.4% year-over-year to $616.50 million for the first quarter that ended September 30, 2022. Its operating loss widened 4% from the prior-year quarter to $374 million. The company’s net loss came in at $408.50 million, widening 8.6% year-over-year. In addition, its adjusted EBITDA loss came in at $33.40 million. Its loss per share stood at $1.20.
In terms of forward EV/Sales, PTON is trading at 2.06x, 72.5% higher than the industry average of 1.19x. The stock’s forward Price/Sales multiple of 1.48 is 57.4% higher than the industry average of 0.94. Also, its forward Price/Book multiple of 119.39 compares to the industry average of 2.82.
Street expects PTON’s revenue to decline 37.2% year-over-year to $712.52 million for the second quarter (ended December 31, 2022). Its EPS is expected to remain negative in fiscal 2023 and fiscal 2024.
Over the past year, the stock has declined 63.8% to close the last trading session at $11.63.
PTON’s POWR Ratings are consistent with this bleak outlook. The stock has an overall rating of F, which translates to a Strong Sell in our proprietary rating system.
It has an F grade for Stability and Sentiment and a D for Value and Quality. Among the 57 stocks in the same industry, it is ranked #55. Click here to see additional ratings of PTON (Growth and Momentum).
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PG shares were trading at $150.88 per share on Monday afternoon, up $1.07 (+0.71%). Year-to-date, PG has declined -0.45%, versus a 4.20% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions. More...
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