TOPICS FOR DISCUSSION Overview Business Analysis Economic Analysis Financial Analysis Valuation Recommendation ABOUT THE SECTOR Trading Symbol XLP Consumer Staples make around 628 of the SampP 500 630 of the SIM portfolio making it the 7 ID: 1020493
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1. CONSUMER STAPLESCami Diamond, Sherry Chen, Yu Hung Cheng, Aditi Agarwal, Carissa Casselman
2. TOPICS FOR DISCUSSIONOverviewBusiness AnalysisEconomic AnalysisFinancial AnalysisValuationRecommendation
3. ABOUT THE SECTORTrading Symbol – XLPConsumer Staples make around 6.28% of the S&P 500 (6.30% of the SIM portfolio), making it the 7th heaviest weighted sector. The sector consists of companies that provide goods and services that people use daily, like food, clothing, or other personal products. It also includes supermarkets and large consumer super centers. To date, the Consumers Staples sector is down -3.61%.
4. SECTOR AND INDUSTRY ANALYSISBeverages – 23.90%Food and staples retailing - 23.96%Food products – 16.1%Household products – 22.8%Personal products – 2.7%Tobacco – 10.6%
5. OVERVIEW Procter & Gamble ($373.8bn)Coca-Cola ($271.49bn)PepsiCo ($228.66bn)Philip Morris International ($158.92bn)Unilever ($124.57bn)HISTORICAL RETUNS
6. BUSINESS ANALYSISDefensiveMost companies across the sector have low BetasLow VolatilityDemand remains at a relatively constant level Safe Haven for investors in times of economic downturns Steady, slow growth
7. BUSINESS LIFE CYCLE
8. Supply and demandCompetitionStrength of customersSubstitutionProfitability and pricing Ease of entry BUSINESS ANALYSIS
9. ECONOMIC ANALYSISConsumer Staples vs. SP500Consumer Staples vs. UnemploymentConsumer Staples vs. US Real GDPConsumer Staples vs. CPI
10. ECONOMIC ANALYSIS
11. FINANCIAL ANALYSISCY2018CY2019CY2020CY2021LatestGross Margin %27.4%27.2%27.2%25.9%26.6%SG&A Margin %18.5%18.5%18.2%16.5%17.7%EBITDA Margin %10.8%10.6%10.9%11.3%10.8%EBIT Margin %8.6%8.3%8.7%9.3%8.7%Net Income Margin %4.6%4.5%5.0%6.7%5.2%MARGIN ANALYSISCY2018CY2019CY2020CY2021LatestReturn on Assets %6.1%6.0%6.2%6.6%6.6%Return on Capital %8.8%8.5%9.0%9.8%9.7%Return on Equity %15.6%16.2%18.2%25.1%19.1%PROFITABILITY ANALYSISSource: https://www.capitaliq.com/CIQDotNet/Lists/KeyStats.aspx?listObjectId=127063744CY2018CY2019CY2020CY2021LatestCurrent Ratio0.9x0.9x1.0x1.0x1.0xAvg Days Inventory Outstanding46.445.745.243.544.2Quick Ratio1.2x1.2x1.2x1.2x1.2xSHORT TERM LIQUIDITY ANALYSISCY2018CY2019CY2020CY2021LatestRevenue, 1 Yr Growth %3.3%6.0%4.2%11.8%9.0%NI, 1 Yr Growth %-17.0%4.5%15.0%25.4%9.1%Revenue, 2 Yr CAGR %3.6%4.6%5.1%6.9%6.2%NI, 2 Yr CAGR %-11.4%-6.9%9.7%20.6%23.3%Revenue, 3 Yr CAGR %3.1%4.4%4.5%7.3%6.2%NI, 3 Yr CAGR %-1.9%-6.4%-0.1%8.3%1.2%GROWTH ANALYSIS
12. VALUATION ANALYSISP/E, P/S, P/B, P/CF ratios have lower volatilities than marketP/E, P/S ratios are lower than S&P 500 for most of time
13. SECTORS COMPARISON Consumer staple sector is more stable than other sectorsFinancial, information and technology, and consumer discretionary have more volatilities than others
14. SUBSECTORS/COMPANIES COMPARISON - P/E RATIO CostcoHain CelestialKrogerConstellation BrandsMondelez International IncP/E Ratio43.226.014.625.323.0Most subsectors are stable, while personal product subsector has higher volatilityCostco has highest P/E ratio, but other companies do not have much difference
15. TECHNICAL ANALYSISBollinger Band become narrower, and the price does not under or below the bandsThe short-term MA does not exceed long or mid-term MARSI is 51.66, which is not at the high pointThe sector will not have much change in the future
16. RECOMMENDATIONWe recommend that Consumer Staples in the SIM portfolio should be OVERWEIGHT relative to the S&PIndustries: Beverages & Food Products Positives: Low volatility regardless of the state of the economyRisks: If there was a turn in economic conditions and the market improves overall, consumer staples may not perform as well relative to other sectors.
17. REFERENCEShttps://www.reuters.com/article/us-health-coronavirus-staples-stocks-idUSKCN21W2RFhttps://www.investopedia.com/terms/c/consumerstaples.asphttps://www.spglobal.com/spdji/en/indices/equity/sp-500-consumer-staples-sector/#overview