On October 4th, Citi analysts Tobias Levkovich, Lorraine Schmitt and Christina Wood made the following revisions in industry group ratings in their ‘deep-dive’ sector research report Sector & Industry Group Navigator (SIGN):
Food, Beverage & Tobacco – Upgraded to Market Weight from Underweight
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Household & Personal Products – Upgraded to Market Weight from Underweight
Diversified Financials – Upgraded to Overweight from Market Weight
Energy – Downgraded to Market Weight from Overweight
In this article we take a look at their rationale for upgrading Food, Beverage & Tobacco (Sector Consumer Staples) from Underweight to Market Weight.
Industry Group: Food, Beverage & Tobacco
Earnings (Score: Positive)
Upward revisions as a percentage of total performance show that revisions “are sitting at trough-like levels. “
The industry group’s market cap contribution sits just a tad above its EPS contribution.
Sentiment (Score: Neutral)
Citi notes that though Buy ratings in the industry group are showing a rising trend, they are still lower by the S&P 500 (INDEXSP:.INX) average by 300 bps, while clients appear to be less interested in a defensive play like this industry group.
Trading Places (Score: Positive)
Beta of the group relative to the S&P 500 is showing rising tendencies. Besides, a seasonality history shows that it is better to acquire stocks in this group in the latter half of the year.
Valuation (Score: Negative)
Citi’s proprietary valuation model shows that the group looks risky relative to its 12-month forward performance.
Fundamentals (Score: Negative)
The group has an inverse relationship with interest rates and this has shown up in the hardening interest rate scenario in recent months. Moreover, Citi’s economic model projects under-performance from the sector. Lastly, branded goods have been facing pricing challenges.
The industry group was lifted from Underweight to Market Weight.