‘Expect Continued Outperformance,’ Says Cowen About These 2 Household Stocks

Market volatility is rising, and a fast-changing political scene promising more uncertainty in this election year, making this a smart time to start looking into defensive stock positions.

There are plenty of stocks that fit this bill, but some that frequently get overlooked are the household stocks, shares in personal care and consumer packaged goods (CPG) companies. While these companies are frequently well known (think Johnson & Johnson, for example), many of their products are so common that we just don’t think about them.

But analyst Robert Moskow, covering this sector for TD Cowen, points out the advantages here for investors. He notes that these are high-quality companies, with long histories in the business and reputations for creating long-term stockholder value. The CPG sector invests heavily in R&D, to offer solutions for consumers’ everyday household problems. And they are good at keeping up sales in difficult economic situations. While this adds up to defense, it also gives these stocks a solid growth profile.

Moskow sums up these stocks in clear terms, writing, “Having come to the end of the inflation super cycle, many CPG companies are struggling to hold onto the pricing they put into the market. Our proprietary work demonstrates that HPC companies are better positioned from a value perspective because they have raised prices less than food and beverage (4 pts and 12 pts), have invested more heavily in innovation to premiumize their categories, and face less public pressure from retailers to lower prices. We also find that HPC stocks tend to outperform staples peers during periods of pricing stagnation (20 pts from 2017-19), similar to current conditions.”

Going forward from this, the analyst tells us to ‘expect continued outperformance,’ and recommends 2 household stocks for investors to buy now. Let’s take a closer look at them and get the broader Street perspective with help from the TipRanks database.

Unilever Plc (UL)

We’ll start with Unilever, the British-based multinational with its hands in a wide range of consumer goods segments. Unilever’s product lines include a variety of foods, from breakfast cereals to baby food to dairy products, as well as hygiene and beauty products, pet foods, pharmaceuticals, instant coffees and creamers, and soap – the company is the world’s largest soap manufacturer. These are marketed under a wide array of brand names, some of which are household staples: Knorr, Hellmann’s, Dove, Vaseline.

Unilever’s roots go back to 1929, when the British soap company Lever Brothers merged with the Dutch margarine producer Unie – and today the company has a market cap of approximately $144 billion. Unilever’s products are available in nearly 200 countries, and the company reaches more than 3.4 billion people around the world.

Looking at the financial side, Unilever reported 15 billion Euros at the top line the first quarter of this year. This represented an underlying year-over-year sales growth of 4.4%. The company has five business groups – Beauty & Wellbeing; Personal Care; Home Care; Nutrition; Ice Cream – and all five showed increases in Q1, with the largest gains coming in Beauty & Wellbeing, while Personal Care and Nutrition had the largest shares of the top line. Unilever’s largest geographical region, for sales, was Asia Pacific Africa with 6.6 billion Euros, followed by The Americas with 5.5 billion, with Europe rounding out the rest at 2.9 billion. Looking ahead, Unilever is set to release its financial results for Q2 and half-year 2024 on July 25.

For Cowen analyst Moskow, the keys here lie in newer, more proactive management as well as the company’s strong brand line-up. He writes, “Talented new CEO is in the early stages of implementing a performance-based cultural turnaround with an increased focus on product superiority across its 30 ‘Power Brands.’ Recent reorganization reduces complexity of matrix organization, increases accountability, and gives global category leaders more control over P&L and regional execution… We expect positive revisions to organic sales growth and EPS, fueled by productivity savings and marketing investment. Ice Cream de-merger should further simplify investment proposition.”

Moskow quantifies his stance on Unilever with a Buy rating and a $67 price target that suggests a 17% share appreciation in the next 12 months. (To watch Moskow’s track record, click here)

Only one other analyst has recently waded on with a UL review, but they are also positive, making the consensus view here a Moderate Buy. Based on a trading price of $57.27 and an average target price of $60, there’s potential upside of a modest 5% for the coming year. (See Unilever stock forecast.)

Church & Dwight Company (CHD)

The second name on our list today is Church & Dwight, a household goods company with roots stretching back to the 1840s and best known today as the parent company behind Arm & Hammer baking soda. Some of Church & Dwight’s other brands include the OxiClean line of household cleaning products; the Aim and Pepsodent toothpaste names, which were acquired from Unilever in 2003; and the Trojan brand of prophylactics. The company operates through three main segments – Consumer Domestic, Consumer International, and Specialty Products – and is active worldwide.

Church & Dwight was added to the S&P 500 in 2016, and the company posted nearly $5.9 billion in total revenues last year, for year-over-year growth of more than 9%.

In the company’s most recent earnings release, covering 1Q24, we saw that Church & Dwight brought in $1.5 billion in total revenues, a figure that was up just over 5% year-over-year and beat the forecast by $10 million. At the bottom line, CHD reported a non-GAAP earnings per share of 96 cents; this was up nearly 13% year-over-year and beat the estimates by 9 cents per share. Church & Dwight bumped its full-year 2024 projections for cash from operations up, from $1 billion to $1.05 billion. That increased outlook came even as the company increased its capital expenditures by $21.3 million year-over-year, in line with a planned capacity expansion project.

This all adds up to a company that is on the move, and working to shore up an already sound position in the household niche. Moskow would agree, and writes of Church & Dwight, “Aggressive, innovative, and acquisitive business model has made it one of the most successful long-term value-creators in the consumer staples industry… We believe CHD will expand gross margin faster than long-term target (+25-50 bps per year) due to strong volume growth, mix-accretive acquisitions, favorable price/cost, and internal incentive structure…”

This stance leads naturally to a Buy rating, and Moskow adds a $116 price target to imply a one-year upside potential of 16%.

From the Street generally, the view is more mixed. CHD shares only get a Hold consensus rating, based on 16 analyst reviews that break down to 7 Buys, 6 Holds, and 3 Sells. That said, the $108.81 average price target suggests the stock will gain 8.5% on the one-year horizon. (See CHD stock forecast.)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.