2 Wide-Moat Packaged Foods Stocks for Your Cart

2 Wide-Moat Packaged Foods Stocks for Your Cart
Securities In This Article
Clorox Co
(CLX)
Campbell Soup Co
(CPB)
Kellanova Co
(K)
McCormick & Co Inc Registered Shs Non Vtg
(MKC)

Erin Lash: Much angst across the consumer products landscape has centered on the ability of manufacturers to reignite the stagnant top-line performance that has plagued a broad swath of industry firms, and this was a main topic at the Consumer Analyst Group of New York conference in February. While we've been encouraged that rhetoric by management teams across the sector has pivoted of late from an outsize focus on the importance of cost-cutting to one more centered on bolstered brand investments to drive profitable and sustainable gains, the proof is in the pudding.

In our view, the challenge hasn’t merely resulted from the level of spend though, but rather extends to include the speed and agility at which established manufacturers are bringing value-added innovation to market. More specifically, it has historically taken anywhere from 18-24 months for leading brands to get a product from concept to shelf but smaller, niche startups have proven much more nimble in responding to evolving consumer trends. We posit that efforts to empower local leaders to a greater extent and employ “test and learn” launches (starting small, incorporating learnings, and rolling out on a broader scale) are a few interesting approaches to combating these headwinds.

From a valuation perspective, we’d suggest wide-moats Kellogg and Campbell Soup each appear attractive, trading at more than 20% discounts to our valuation. Both operators are working to shed noncore businesses from their mix as a means to focus their resources (both financial and personnel) on the highest return opportunities, which we view as prudent.

Some operators, though, have withstood these headwinds, including wide-moats Clorox and McCormick. However, neither strikes us as attractive bargains at current levels, trading at 15% to 30% premiums to our fair value estimates. But we’d suggest investors keep each on their radar for a more attractive valuation.

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About the Author

Erin Lash, CFA

Sector Director
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Erin Lash, CFA, is a sector director, AM Consumer, for Morningstar*. In addition to leading the sector team, she covers packaged food and household and personal care companies. Beyond managing a team of nine analysts and associates covering an array of consumer firms, Lash also conducts fundamental analysis of 13 multi-billion-dollar market capitalization firms in the packaged food and household and personal care space.

Before joining Morningstar in 2006, Lash spent four years as an investment analyst covering retail, transportation, and technology firms for State Farm Insurance. In this capacity, Lash analyzed financial statements, business strategy, and fundamentals of owned companies and potential investments, presenting her recommendations based on this analysis to State Farm portfolio managers for ownership consideration.

Lash holds a bachelor’s degree in finance from Bradley University’s Foster College of Business. She also holds a master’s degree in business administration, with concentrations in accounting and finance, from the University of Chicago Booth School of Business. Lash has completed the Chartered Financial Analyst® designation. She ranked second in the food and tobacco industry in The Wall Street Journal’s annual “Best on the Street” analysts survey in 2013, the last year the survey was conducted.

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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