Consumer Staples

Report by Kailash Capital Research

KCR highlights the uncommon relative value available in blue-chip staples stocks. The data is clear: today is one of the best times in 30+ years to buy select names in the sector and KMB appears to be a stock with rapidly improving fundamentals which investors have overlooked. It trades at ~18x projected 2025 earnings, a 10% discount to the S&P 500 and a ~25% discount to peers, despite the strong and consistent earnings and cash flow growth it has reported over the last eight quarters. KMB also trades at a substantially lower multiple of P/FCF (16x vs. 23x-41x for Clorox, Colgate-Palmolive and Procter & Gamble), while offering a materially higher dividend. If the 6x-7x P/E multiple gap were to be cut in half, KMB’s share price could be revalued higher by ~$25.

Report by Behind the Numbers

BTN have been warning investors about companies enjoying an unsustainable tailwind to cash flow growth by accelerating their use of short-term financing vehicles. However, rising rates are about to end the SCF party. They highlight Keurig Dr Pepper, JM Smucker and Procter & Gamble who have utilised SCF arrangements to a material degree and offer a simple framework for assessing the impact on their earnings and cash flows. They also discuss the implications of the FASB announcement this summer that it will be requiring enhanced disclosure regarding these programs (new rules go into effect in 2023).