Consumer goods manufacturers are in a sweet spot — and many of their stocks are not expensive.
Retail sales rose 3.2% from a year earlier in July, up from 1.2% in June, a sign that consumer spending is rising despite the Federal Reserve’s efforts to curb demand for goods and services. Economists say the good times are likely to continue as the Federal Reserve is nearing the end, though not entirely, of raising interest rates to fight inflation.
With all that in mind, analysts are raising their earnings forecasts for companies that buy their products as they make money after buying essentials. Those businesses-
General Motors
(Mark: GM),
Ford Motor
(F) and Bond Holdings (
BKNG
) are examples – the faster the economy grows, the more profitable they become.
Total 2023 Forecast Earnings Per Share of Companies in the Invesco S&P 500 Equal Weight Consumer Discretionary Exchange Traded Fund (in 2023)
kabupaten
), weights each stock equally and removes excessive influence Amazon.com (AMZN), has increased 10% in the past six months, according to FactSet.
That comes as many consumer-focused companies earn better-than-expected earnings. Sales exceeded forecasts, though not by much, and slowing labor and material costs are helping better-than-expected profit margins.
To find companies that accurately reflect the strength in this sector, Baron Then look for higher income updates. Because stocks often go higher for dividend growth forecasts, we only look for those that are trading at more than 20 times next year’s expected EPS. For comparison, the S&P 500 figure is 19 times.
Besides Ford, GM and Reservation, there are some names that have come out.
Caesar’s entertainment
(CZR),
MGM Resorts International
(MGM), and
Royal Caribbean Group
(RCL)
Analyst consensus forecasts for Ford’s 2023 EPS have risen nearly 30% over the past six months. Strong results for the second quarter help explain that. Sales were $44.9 billion, compared to analysts’ expectations of $43.2 billion, as prices rose and more vehicles were sold. Operating margins beat forecasts, contributing to earnings of 72 cents a share, while Wall Street was expecting 54 cents.
And the stock is still cheap. In the year 2023 has fallen from its July peak and trades at more than six times earnings, about half the multiple it traded at in early 2022, before the Fed began to lift rates.
EPS estimates for GM increased by about 26 percent. It reported sales of $44.7 billion in the second quarter, higher than expectations of $42.1 billion. Although operating margins fell below expectations due to higher-than-expected costs, GM sold enough cars and had enough earnings to post EPS of $1.91, above the forecast of $1.86.
The stock, also at less than five times its year-to-date high, trades at about nine times earnings in early 2022.
The $112 billion hotel booking website raised its EPS forecast by 10.5 percent. Sales have grown every year for more than a decade as online travel planning has displaced human travel agents.
Starting in 2024, analysts expect annual sales to grow nearly 10% annually for three years to reach $27.7 billion in 2026, according to FactSet. The company has beaten forecasts 15 times over the past 20 quarters. Wall Street’s consensus view is that margins should expand, which would lead to roughly 13% annual growth in EPS, which would bring the total to $204.52 in 2026. In a call to discuss the latest results, the management of the reservation is looking for new sources of income. And one possibility is to charge fees for payments on the platform.
Even after a more than 50% gain this year, the stock is valued at 19.4 times EPS. That’s less than twice the expected 19.4% profit growth of 13%. A comparable figure for the S&P 500 is expected to double EPS growth.
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Write to Jacob Sonenshine at [email protected]
