Concerns over the record-high inflation, supply chain constraints, geopolitical conflicts between Russia and Ukraine, and the Federal Reserve’s upcoming interest rate hikes have kept the stock market under pressure since the beginning of the year. While the soaring inflation has been hurting the financials of several companies, consumer staples companies are well-positioned to pass on the rising costs to consumers and stay afloat because of almost inelastic demand for their products.
Moreover, the launch of new products keeping pace with changing consumer trends and digitization of operations is expected to drive consumer staples companies' growth. Investor interest in this defensive sector is evident from the First Trust Consumer Staples AlphaDEX ETF’s (FXG) 4.1% gains over the past three months versus the SPDR S&P 500 Trust ETF’s (SPY) negative returns.
Therefore, prominent consumer staples companies Diageo plc (DEO), Archer-Daniels-Midland Company (ADM), The Kroger Company (KR), Albertsons Companies, Inc. (ACI), and BJ's Wholesale Club Holdings, Inc. (BJ), which are currently trading at discounts to their peers, could be ideal bets to hedge your portfolio against inflation.
Diageo plc (DEO)
Headquartered in London, U.K., DEO produces, distills, and sells alcoholic beverages, including vodkas, whiskeys, tequilas, gins, and beer worldwide. The company provides its products primarily under the Johnnie Walker, Smirnoff, Captain Morgan, Baileys, Tanqueray, and Guinness brands.
On January 31, 2022, DEO announced its plan to invest £73 million in ‘Guinness at Old Brewer’s Yard’, a new microbrewery and culture hub in Covent Garden, London, set to open in Autumn 2023. Guinness sales in Great Britain have grown by over 30% in the last six months. The investment demonstrates DEO’s confidence in London and the UK as a go-to destination for tourists and its commitment to the hospitality sector.
For the half-year ended December 31, 2021, DEO’s net sales increased 15.8% year-over-year to £7.96 billion ($10.81 billion). The company’s gross profit came in at £5 billion ($6.80 billion), representing an 18.7% year-over-year improvement. Its operating profit came in at £2.74 billion ($3.73 billion), indicating a 22.5% rise from the prior-year period. DEO’s net income came in at €2.01 billion ($2.84 billion), up 25.7% from the prior-year period. Its EPS increased 24.6% year-over-year to 84p. The company had cash and cash equivalents of £12.33 billion ($16.76 billion) as of December 31, 2021.
Analysts expect DEO’s EPS to improve 18.3% year-over-year to $7.69 for fiscal 2022, ending June 30, 2022. The consensus revenue estimate of $19.75 billion for the same fiscal year represents an 11.1% rise from the prior-year period. The company’s EPS is expected to grow at a 10.9% rate per annum over the next five years.
The stock has gained 5.2% over the past nine months to close yesterday’s trading session at $199.29. DEO’s 2.27x non-GAAP forward PEG is 20.6% lower than the 2.86x industry average. The company’s total assets have grown at a CAGR of 1.1% over the past three years.
DEO’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a B grade for Sentiment, Quality, and Stability. Click here to see the additional ratings for DEO’s Growth, Value, and Momentum. DEO is ranked #13 of 36 stocks in the B-rated Beverages industry.
Archer-Daniels-Midland Company (ADM)
ADM procures, transports, stores, processes, and merchandises agricultural commodities, products, and ingredients internationally. The company operates through Ag Services and Oilseeds; Carbohydrate Solutions; and Nutrition. It also offers futures commission merchant and insurance services.
On February 9, 2022, ADM completed its acquisition of Comhan, a leading South African flavor distributor. This acquisition will strengthen ADM’s Nutrition business in key growth markets, including Africa, and extend production and supply chains, making it easier to provide unique and consumer-preferred flavors to local customers.
For its fiscal 2021 fourth quarter ended December 31, 2021, ADM’s revenues increased 28.4% year-over-year to $23.09 billion. The company’s gross profit came in at $1.65 billion, indicating a 22% year-over-year improvement. ADM’s adjusted EBITDA came in at $1.41 billion for the quarter, representing a 24.4% rise from the prior-year period. While its adjusted net earnings increased 24.3% year-over-year to $850 million, its adjusted EPS grew 24% to $1.50. As of December 31, 2021, the company had $943 million in cash and cash equivalents.
The consensus EPS estimate of $5.19 for fiscal 2022, ending December 31, 2022, represents no change from the prior-year period. However, it surpassed the consensus EPS estimates in each trailing four quarters. Analysts expect the company’s revenue to reach $86.13 billion for the same fiscal year, representing a 1.2% rise from the prior-year period. The company’s EPS is expected to grow at a 6.6% rate per annum over the next five years.
ADM has gained 14% over the past nine months and ended yesterday’s trading session at $76.71. In terms of forward EV/Sales, ADM is currently trading at 0.61x, 68.2% lower than the 1.93x industry average. In terms of forward Price/Cash Flow, ADM is currently trading at 10.90x, 24.2% lower than the industry average of 14.38x. The company’s total assets have increased at a CAGR of 11.2% over the past three years.
ADM’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system.
It has a B grade for Value, Growth, and Sentiment. Click here to see the additional ratings for ADM (Quality, Momentum, and Stability). ADM is ranked #2 of 29 stocks in the Agriculture industry.
The Kroger Company (KR)
KR operates combination food and drug stores, multi-department stores, marketplace stores, and price impact warehouses that offer natural food and organic sections, pharmacies, general merchandise, fresh seafood, apparel, home fashion and furnishings, electronics, and automotive products. The company also sells fuel through 1,596 fuel centers.
On February 21, 2022, KR and Kitchen United MIX, a leading provider of restaurant hub technology, streamlined logistics, and turn-key commercial kitchen space, announced the opening of a kitchen center in Houston, Texas. This collaboration further enhances the digital ordering of freshly prepared, on-demand restaurant meals from any or all participating restaurants using Kitchen United's proprietary MIX platform via the web, mobile, or an in-person ordering kiosk. The companies should witness high demand in the coming months.
For its fiscal 2022 third quarter ended November 6, 2021, KR’s sales increased 7.2% year-over-year to $31.86 billion. The company’s operating profit came in at $868 million, up 9.6% from the prior-year period. It had $324 million in cash as of November 6, 2021.
Analysts expect KR’s EPS to improve 1.2% year-over-year to $3.51 for fiscal 2022, ended January 31, 2022. It surpassed the consensus EPS estimates in each of the trailing four quarters, which is impressive. The consensus revenue estimate of $137.54 billion for the same fiscal year represents a 3.8% rise from the prior-year period. The company’s EPS is expected to grow at a 6.6% rate per annum over the next five years.
Over the past nine months, the stock has gained 22.6% to close yesterday’s trading session at $45.04. KR’s 0.38x forward EV/Sales is 80.4% lower than the 1.93x industry average. In terms of forward Price/Cash Flow, KR is currently trading at 6.66x, which is 53.7% lower than the industry average of 14.38x. The company’s total assets have grown at a CAGR of 9.3% over the past three years.
KR’s POWR Ratings reflect its solid prospects. It has an overall rating of A, which equates to Strong Buy in our proprietary rating system.
The stock has an A grade for Growth and a B grade for Value and Quality. In addition to the POWR Ratings grades we have just highlighted, one can see the ratings for KR’s Stability, Sentiment, and Momentum here. KR is ranked #11 of 39 stocks in the A-rated Grocery/Big Box Retailers industry.
Albertsons Companies, Inc. (ACI)
ACI operates as a food and drug retailer that offers grocery products, general merchandise, health and beauty care products, pharmacy, fuel, and other items and services through its stores as well as various digital platforms. As of February 27, 2021, it operated 2,277 stores under various banners.
On January 5, 2022, ACI announced the completion of a system-wide installation of time-locked safes at every pharmacy location. Research on retail crime prevention has shown that time-locked safes promote a safe environment through securing access to controlled substances and preventing confrontations that can put employees in harm’s way. This would help ACI provide people with a safe environment and reliable access to prescription services.
For its fiscal 2021 third second quarter ended December 4, 2021, ACI’s net sales and other revenue increased 8.6% year-over-year to $16.73 billion. The company’s gross profit came in at $4.83 billion, showing a rise of 7.1% from the prior-year period. Its operating income came in at $599.60 million, up 132% from the year-ago period. ACI’s adjusted net income came in at $457.20 million, representing an 18.3% rise from the prior-year period. Its adjusted EPS of $0.79 for the quarter indicates a 15.2% year-over-year improvement. As of December 4, 2021, the company had $2.66 billion in cash and equivalents.
Analysts expect the company’s revenue to reach $70.94 billion for the fiscal year 2021, ending February 28, 2022, representing a 1.8% rise from the prior-year period. It surpassed Street EPS estimates in each of the trailing four quarters.
The stock has gained 49.7% over the past nine months and ended yesterday’s session at $28.29. ACI’s 0.38x forward EV/Sales is 80.1% lower than the 1.93x industry average. In terms of forward Price/Cash Flow, ACI is currently trading at 4.84x, 66.3% lower than the industry average of 14.35x. The company’s total assets have grown at a CAGR of 10% over the past three years.
ACI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system.
It has an A grade for Growth, and a B grade for Sentiment, Quality, and Value. Click here to see the additional ratings for ACI (Stability and Momentum). ACI is ranked #1 in the A-rated Grocery/Big Box Retailers industry.
BJ's Wholesale Club Holdings, Inc. (BJ)
BJ operates warehouse clubs, offering perishable, edible grocery, general merchandise, and non-edible grocery products, as well as gasoline and other ancillary services. The company also sells its products through its website and mobile app. As of January 24, 2022, it operated 225 warehouse clubs and 155 gas locations.
On January 25, 2022, BJ agreed to acquire the assets and operations of four distribution centers and the related private transportation fleet from its longtime partner Burris Logistics, one of the nation's largest and most sophisticated controlled-temperature food distribution companies. The acquisition will allow BJ to insource its perishable supply chain, broaden its footprint, and expand its fresh food offerings.
For its fiscal 2021 third quarter ended October 30, 2021, BJ’s total revenues increased 14.3% year-over-year to $4.26 billion. The company’s income from continuing operations came in at $126.60 million, representing a 3% rise from the prior-year period. As of December 25, 2021, the company had $117.97 million in cash and cash equivalents.
Analysts expect the company’s EPS to reach $3.20 for the fiscal year 2022 ended January 31, 2022, representing a 3.6% rise from the prior-year period. It surpassed Street EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $16.73 billion for the same fiscal year indicates an 8.4% improvement from the prior-year period. The company’s EPS is expected to grow at a 5.2% rate per annum over the next five years.
The stock has gained 35% over the past nine months and ended yesterday’s trading session at $62.80. In terms of forward EV/Sales, BJ is currently trading at 0.71x, 63.1% lower than the 1.93x industry average. And in terms of forward Price/Cash Flow, BJ is currently trading at 11.69x, which is 18.5% lower than the industry average of 14.35x. The company’s total assets have grown at a CAGR of 18.1% over the past three years.
BJ’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. It has a B grade for Value.
Click here to see the additional ratings for BJ (Stability, Growth, Quality, Momentum, and Sentiment). BJ is ranked #18 in the A-rated Grocery/Big Box Retailers industry.
DEO shares were trading at $199.21 per share on Wednesday afternoon, down $0.08 (-0.04%). Year-to-date, DEO has declined -9.51%, versus a -11.14% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
5 Best Consumer Staples Stocks to Buy as Inflation Protection StockNews.com
