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Church & Dwight or Unilever: Which Stock is More Appealing?

The consumer staples sector has been drawing investors’ attention of late, backed by an improving economy and rising consumer confidence. Improved labor market optimism and gradual wage acceleration are doing the trick for the stocks in this space and are driving consumer confidence, a key determinant of the economy’s health.

Consumer confidence improved moderately during the month of June, indicating that the economy is on the recovery path after a dismal show in the month of May.

Steady job additions and persistently low unemployment have have helped the household wealth to increase. This in turn, boosted consumer spending. The recent hike of its benchmark interest rate by Federal Reserve reiterates the fact that the economy is in good shape. Further, the Fed indicated that it anticipates the next hike in December, along with three more in the coming year, which signals rising consumer confidence as well as the U.S. economy’s growth.

Although the Consumer Staple sector, which is at the bottom 44% of the Zacks Sector Rank (9 out of 16), has not been an outstanding performer, it still holds promise, given the favorable economic indicators. Meanwhile, if we look into the performance of the Zacks categorized Soap & Cleaning Preparations industry, which is a part of the broader consumer staple sector, we will see that out of the 260-plus industries, the industry is placed among the top 4% of Zacks classified industries and holds a Zacks Industry Rank #10. To learn more visit: About Zacks Industry Rank.

Having said this, let’s try to ascertain which of these two key food players – Church & Dwight Co., Inc. CHD and Unilever Plc UL, presently make for a better investment option.

Both the stocks carry Zacks Rank #2 (Buy), which highlights the fact that it is likely to outperform the broader market over the next one to three months, as per our proprietary Zacks Rank which is designed to predict price movements over the next one to three months. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Ewing, NJ-based Church & Dwight is the world's leading producer of baking soda and has delivered positive earnings surprise in 10 out of the 13 consecutive quarters. It has also reported positive sales surprise in 11 of the past 13 quarters.

We believe that stable portfolio of value and premium products, judicious management of overhead expenses along with robust sales and earnings growth will help propel the stock.However, the company has been witnessing pricing pressures, rising commodity costs, stiff competition and weak consumer demand in many markets. The company also remains exposed to unfavorable foreign currency translations, which might hurt sales and profits.

On the other hand, Unilever, the Anglo-Dutch company has undertaken a comprehensive review to return more cash to shareholders as well as indulge in more aggressive cost cuts, after Unilever rejected Kraft Heinz Co.’s KHC $143 billion surprise offer on Feb 17. The maker of Dove products and Ben & Jerry’s seeks to evaluate options regarding its portfolio, organization, cost structures, balance sheet and use of cash.

The company is acquiring brands in order to fortify its position in personal-care and home-care segment. Besides acquisition, Unilever is also divesting its underperforming businesses. Furthermore, the company announced that it would buy back shares, hike dividends, raise cost savings target as well as combine foods and refreshments businesses.

Market Capitalization

Unilever’s market capitalization is .39 billion, while that of Church & Dwight is just $12.91 billion. Going by its business size, Unilever is better positioned over the long term owing to its massive scale of operations.

VGM Score

We note that the VGM score is a comprehensive tool that will allow investors to filter through the standard scoring system and choose better winning stocks. In order to screen out potential winning stocks, we consider only those that have a Zacks Rank #1 or 2 (Buy) and a VGM score of ‘A’ or ‘B’.

In that case, Unilever seems to outpace Church & Dwight on VGM Score as well. Unilever’s VGM Score of ‘A’ is favorable than Church & Dwight’s VGM Score of ‘C’. Hence, we should consider it a favorable investing option.

Price Performance

The performance of the companies is well reflected in the prices over the past six months. While shares of both the companies have outperformed the Zacks categorized Soap & Cleaning Preparations industry and the broader Consumer Staples sector, those of Unilever have significantly outpaced the sub-industry. While Unilever’s shares have moved up 32.3%, Church & Dwight have rallied 16.1% since the last six months. The industry has grown 13.3% since the last six months, while the sector grew 8.5%.

 

Estimate Revisions

Upward estimate revisions are indicative of positive investor sentiment about a stock. The Zacks Consensus Estimate for Unilever has increased 4.1% for full year 2017 and improved 4.0% for 2018 over the last 60 days. On the other hand, the Zacks Consensus Estimate for 2017 increased 1.6% for Church & Dwight, while the same has gone up 2.0% for 2018 over the last 60 days. This clearly shows that Unilever has been growing strongly.

Unilever’s earnings for the full year 2017 and 2018 are expected to grow 22.1% and 13.8%, respectively. The growth rate is however subdued in the case of Church & Dwight, where earnings per share are projected to increase 8.9% and 7.8% in the coming years.

The above arguments clearly state that Unilever is better placed currently and should offer great value to investors.

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Unilever PLC (UL): Free Stock Analysis Report
 
The Kraft Heinz Company (KHC): Free Stock Analysis Report
 
Church & Dwight Company, Inc. (CHD): Free Stock Analysis Report
 
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