Morningstar sees room for food, beverage and household product stocks to rise as companies adjust to consumers spending less.

  • Morningstar said alcoholic beverages and packaged goods appear undervalued as consumers seek cheaper options. 
  • Kraft Heinz trades 40% below Morningstar’s $41 fair value estimate. 
  • Clorox trades 45% below Morningstar’s $154 fair value estimate, with key brands gaining market share. 

Consumer defensive stocks lagged the broader market in the third quarter, but Morningstar sees value in the sector as valuations remain attractive. Kraft Heinz (KHC), Clorox Co. (CLX) and Hershey Co. (HSY) stand out as top picks, trading at discounts of 40%, 45% and 30%, respectively, to Morningstar’s fair value estimates. 

Alcohol And Packaged Goods Lead On Valuation

Erin Lash, director of consumer equity research at Morningstar, said food, beverage, and household product stocks could rise as companies adjust to consumers spending less. 

Lash said alcoholic beverage producers trade at an average 24% discount to Morningstar's fair value estimates, while consumer packaged goods companies sit at a 20% discount. The broader consumer defensive group also appears undervalued, with the median stock trading approximately 5% below its estimated worth.

Higher Transportation Costs Complicate Pricing

Higher trucking and warehousing costs are squeezing company profits, while U.S. food prices have risen 33% since 2019, said Lash. As shoppers become more price-conscious and switch to cheaper options, companies face pressure to control costs and justify further price increases. 

Higher prices have hurt sales volumes for packaged goods companies. Quarterly organic sales volumes have fallen by an average of 0.2% since early 2023, compared with nearly 2% growth from 2018 to late 2021. Morningstar says the decline may be slowing as companies offer products that customers want. 

Kraft Heinz Trades At 40% Discount: Morningstar 

Kraft Heinz trades at a 40% discount to Morningstar's $41 fair value estimate and offers a dividend yield close to 7%. The company dropped its planned separation earlier this year and committed another $700 million to brand development. Morningstar views the decision positively, noting that about 70% of the company's sauces portfolio is gaining market share.

RBC Capital started coverage of Kraft Heinz last month with an ‘Outperform’ rating and a $32 price target, implying a 435 upside to the stock’s close on Friday. The analyst said the company is making major changes that are expected to show their full impact in 2027 and expects Kraft Heinz’s organic revenue and earnings to exceed analysts’ average estimates in 2027. 

Kraft Heinz stock edged 0.04% higher overnight, ahead of Monday. The stock slumped 10% in September, recording its worst month in four years. 

Morningstar Sees Upside For Clorox, Hershey 

Clorox trades 45% below Morningstar’s $154 fair value estimate. The company has gained market share in Hidden Valley Ranch and Glad trash bags, which together generate about one-fifth of its sales. Lash expects efficiency improvements to help support continued brand investment despite recent operating challenges.

However, on Oct.1, TD Cowen cut its price target on the household products maker to $85 from $90 and maintained a ‘Hold’ rating. The firm lowered its FY27 earnings forecast to $5.55 per share, below Clorox’s earlier estimate of $5.70 to $6.00, citing higher shipping and oil costs and continued weakness in several business areas. Clorox stock inched 0.2% lower overnight, heading into Monday. 

Hershey trades at a 30% discount to Lash’s $230 fair value estimate. Morningstar believes product innovation and marketing can help the chocolate maker defend its market position despite softer discretionary spending and consumer interest in healthier foods.

On Friday, BofA provided heft to Morningstar’s argument saying that though concerns about consumer staples remain ahead of third-quarter earnings, buying trends are starting to stabilize and investor sentiment has improved slightly from the previous quarter. 

Hershey stock edged up 0.2% overnight after a 3.7% decline last week. 

So far this year, KHC, CLX, and HSY stocks have declined 8% to 16%. 

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