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U.S. Consumer Discretionary Sector Analysis

UpdatedSep 25, 2022
DataAggregated Company Financials
Companies862
  • 7D-8.2%
  • 3M-4.9%
  • 1Y-31.5%
  • YTD-34.5%

Over the last 7 days, the Consumer Discretionary industry has dropped 8.2%, driven by pullbacks in Amazon.com and Tesla of 7.9% and 9.2%, respectively. However, the industry is down 31% over the past year. Earnings are forecast to grow by 29% annually.

Sector Valuation and Performance

Has the U.S. Consumer Discretionary Sector valuation changed over the past few years?

DateMarket CapRevenueEarningsPEAbsolute PEPS
Sun, 25 Sep 2022US$4.6tUS$3.0tUS$111.0b10.7x41.3x1.5x
Tue, 23 Aug 2022US$5.2tUS$3.0tUS$112.5b11.6x46.2x1.7x
Thu, 21 Jul 2022US$4.9tUS$2.9tUS$120.8b11.4x40.7x1.7x
Sat, 18 Jun 2022US$4.3tUS$2.9tUS$119.6b10.7x36.1x1.5x
Mon, 16 May 2022US$4.8tUS$2.9tUS$121.3b11.7x39.3x1.7x
Wed, 13 Apr 2022US$5.7tUS$2.9tUS$135.6b12.4x42.4x2x
Fri, 11 Mar 2022US$5.4tUS$2.8tUS$132.0b13.2x41.1x1.9x
Sun, 06 Feb 2022US$6.0tUS$2.8tUS$126.2b14.1x47.4x2.2x
Tue, 04 Jan 2022US$6.9tUS$2.8tUS$117.2b16.2x58.5x2.5x
Thu, 02 Dec 2021US$6.9tUS$2.7tUS$117.2b15.4x59.2x2.5x
Sat, 30 Oct 2021US$6.9tUS$2.7tUS$122.3b16.6x56.6x2.6x
Mon, 27 Sep 2021US$6.5tUS$2.6tUS$123.2b17.1x52.4x2.5x
Wed, 25 Aug 2021US$6.4tUS$2.6tUS$120.6b16.3x53x2.4x
Thu, 01 Jul 2021US$6.6tUS$2.6tUS$115.1b17.8x57.3x2.6x
Sun, 04 Apr 2021US$6.2tUS$2.3tUS$66.1b20.4x93.2x2.7x
Wed, 06 Jan 2021US$6.2tUS$2.3tUS$47.4b19.5x130.4x2.7x
Sat, 10 Oct 2020US$5.2tUS$2.2tUS$50.9b19.4x102.4x2.4x
Fri, 03 Jul 2020US$4.1tUS$2.1tUS$51.6b21.1x78.5x2x
Mon, 06 Apr 2020US$3.0tUS$2.2tUS$84.3b10.9x35.2x1.3x
Thu, 09 Jan 2020US$3.7tUS$2.3tUS$114.7b18.5x32.3x1.6x
Wed, 02 Oct 2019US$3.3tUS$2.3tUS$108.3b17.5x30.7x1.5x
Price to Earnings Ratio

30.7x


Total Market Cap: US$3.3tTotal Earnings: US$108.3bTotal Revenue: US$2.3tTotal Market Cap vs Earnings and Revenue0%0%0%
U.S. Consumer Discretionary Sector Price to Earnings3Y Average 64.3x202020212022
Current Industry PE
  • Investors are pessimistic on the American Consumer Discretionary industry, indicating that they anticipate long term growth rates will be lower than they have historically.
  • The industry is trading at a PE ratio of 41.3x which is lower than its 3-year average PE of 64.3x.
  • The 3-year average PS ratio of 2.1x is higher than the industry's current PS ratio of 1.5x.
Past Earnings Growth
  • The earnings for companies in the Consumer Discretionary industry have remained mostly flat over the last three years.
  • Meanwhile revenues for these companies have grown 9.5% per year.
  • This means that although more sales are being generated, either the cost of doing business or the level of investment back into businesses has increased and as a result, profits have held steady.

Industry Trends

Which industries have driven the changes within the U.S. Consumer Discretionary sector?

US Market-5.22%
Consumer Discretionary-8.18%
Retail Distributors-1.99%
Consumer Durables-2.67%
General Merchanise and Department Stores-3.86%
Specialty Stores-6.33%
Consumer Services-6.43%
Luxury-7.76%
Leisure-7.76%
Online Retail and Ecommerce-8.14%
Auto-9.60%
Hospitality-9.98%
Auto Components-10.42%
Industry PE
  • Investors are most optimistic about the Online Retail and Ecommerce industry which is trading above its 3-year average PE ratio of 58.8x.
    • Analysts are expecting annual earnings growth of 46.1%, which is higher than its past year's earnings decline of 41.1% per year.
Forecasted Growth
  • Analysts are most optimistic on the Online Retail and Ecommerce industry, expecting annual earnings growth of 46% over the next 5 years.
  • This is better than its past earnings decline of 41% per year.
  • In contrast, the Consumer Durables industry is expected to see its earnings growth to stay flat over the next few years.

Top Stock Gainers and Losers

Which companies have driven the market over the last 7 days?

CompanyLast Price7D1YValuation
LI Li AutoUS$25.003.8%
+US$886.9m
-4.3%PS4.7x
TCOM Trip.com GroupUS$25.993.4%
+US$551.9m
-10.6%PS6.6x
GSUN Golden Sun Education GroupUS$52.8976.0%
+US$419.2m
n/aPE1511.1x
LEN LennarUS$77.071.7%
+US$373.0m
-22.9%PE5.1x
XMTR XometryUS$60.055.9%
+US$159.3m
2.9%PS9.4x
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Latest News

F

US$12.31

Ford Motor

7D

-16.4%

1Y

-10.7%

NKE

US$97.02

NIKE

7D

-6.8%

1Y

-35.1%
Sep 23

Earnings week ahead: Micron, Nike, Bed Bath & Beyond, CarMax and more

For the final week of September, a number of high-profile earnings reports are expected. Quarterly results are slated from a wide variety of players across the semiconductor, packaged food, restaurant, retail and leisure industries.  Nike (NYSE:NKE) and Micron (NASDAQ:MU) will headline the week, which will also include updates from the likes of restaurant chain Cracker Barrel Old Country Store (CBRL), RV manufacturer Thor Industries (THO) and HR solutions provider Paychex Corporation (PAYX). Carmax (KMX), Bed Bath & Beyond (BBBY) and Rite Aid (RAD) are also on the itinerary.  Below is a curated list of earnings results to come in the week of September 26 to September 30: Monday, September 26 Earnings are expected from Pluri Inc. (PLUR), Kintara Therapeutics (KTRA), and BeyondSpring (BYSI), per Seeking Alpha earnings calendar forecasts. However, these events have yet to be confirmed by the companies themselves. Tuesday, September 27 Cracker Barrel (CBRL) Cracker Barrel (CBRL) is due to report its fiscal fourth quarter results on Tuesday, with the announcement slated to take place prior to the market open. The Tennessee-based restaurant and gift store chain has staged a stark rally since mid-summer, rising nearly 30% from its 52-week low in June. Still, even with the recent upswing, shares remain about 21% lower than where they ended 2021.  Ahead of the fourth quarter report, Deutsche Bank told clients that the chain’s older clientele is a negative with both inflation and pandemic concerns keeping the demographic away from booths and tables. Quarterly EPS and revenue estimates have each been revised down 3 times each, according to Seeking Alpha data. Consensus EPS Estimates: $1.39 Consensus Revenue Estimates: $838.28M Earnings Insight: Cracker Barrel has beaten EPS estimates in 4 of the past 8 quarters, rising above revenue expectations in 5 of those reports. Cal-Maine Foods (CALM) After the bell on Tuesday, Cal-Maine Foods (CALM) is due to give investors an update on its fiscal first quarter. The stock has been a significant outperformer in 2022, rising more than 60% year to date against significant declines in the major equity indices.  The Mississippi-based egg distributor posted record net income in its last earnings report, citing strong pricing power amid unprecedented inflation. Ahead of the results, Wall Street analysts remain divided. The stock has its advocates as a strong defensive play, but analyst Evin Rohrbaugh calls the stock “highly overvalued.” Consensus EPS Estimates: $2.55 Consensus Revenue Estimates: $617.40M Earnings Insight: Cal-Maine Foods has exceeded EPS estimate in 5 of the past 8 quarters, beating revenue expectations in 6 of those reports. Also reporting: Jabil Inc. (JBL), United Natural Foods (UNFI), and Blackberry Limited (BB) Wednesday, September 28 Thor Industries (THO)  Recreational vehicle manufacturer Thor Industries (THO) is due to report earnings prior to Wednesday’s market open. Shares of the Indiana-based company have fallen over 30% in 2022, with analysts growing cautious on consumer spending and realigning to a Hold consensus. While the company crushed earnings expectations in July, sliding RV sales have been reported into the end of the summer by Baird. Consensus EPS Estimates: $3.84 Consensus Revenue Estimates: $3.68B Earnings Insight: Thor industries has exceeded EPS and revenue estimates in 8 straight quarters. Paychex (PAYX) Paychex (PAYX) is due to update investors on its quarterly performance in Wednesday’s premarket hours. Shares of the Rochester, New York-based HR solutions provider have pushed about 7% higher in the past year, outpacing the market. However, the stock has seen a double-digit plunge in the month prior to its earnings announcement.  About two weeks prior to the report, PAYX entered a partnership with Managed Health to offer companies a new healthcare solution. The report will be the final call to feature outgoing CEO Martin Mucci.

LI

US$25.00

Li Auto

7D

3.8%

1Y

-4.3%

LEN

US$77.07

Lennar

7D

1.7%

1Y

-22.9%

ABNB

US$101.75

Airbnb

7D

-14.3%

1Y

-42.1%

SBUX

US$84.17

Starbucks

7D

-7.8%

1Y

-26.2%
Sep 22

Starbucks: Winter Is Coming

Summary SBUX's financial performance over the next three quarters will be critical to its stock valuations, given the historic winter with potentially sky-high electricity bills. Combined with the record high oil/gas and elevated food prices thus far, we expect to see a moderate pull-back in consumer discretionary spending through Q1'23. It also remains to be seen how the new CEO would perform over the tough quarters ahead, since we already see signs of sales deceleration post reopening cadence. Nothing burns like the cold. We shall see. Investment Thesis Despite Starbucks' (SBUX) optimistic guidance from its Investor Day presentation in early September, it remains to be seen if the company could survive the coming winter. The Feds have proved to be very concerned about the relatively elevated August CPI levels of 8.3%, leading to a 75 basis point hike on 21 September 2022. The future seems murky as well, with the persistent hawkish tone in the Feds commentaries potentially leading to another 75 basis points hike in November 2022. S&P Capital IQ Though SBUX may have reported decent FQ3'22 earnings with robust consumer spending trends, we may see a quick turnabout soon, since food and gas prices remain inflated for now compared to pre-pandemic levels. Its revenue growth is already showing signs of deceleration QoQ and YoY, pointing to the expected normalization from the hyper-growth experienced during the reopening cadence in 2021. Furthermore, SBUX may finally experience a short-term pullback in consumer discretionary spending over the next three quarters, significantly worsened by the elevated electricity bills over the coming winter. It would be interesting ( to say the least ) how this giant plans to survive the stormy weather, with the new CEO at its helm and the supposed "final exit" of its long-term CEO. We shall see. SBUX's Financial Health Remains Relatively Stable Thus Far S&P Capital IQ In its recent Investor Day presentation, SBUX guided massive expansion plans ahead, with capital expenditures of up to $3B for the next three years, including $450M for existing store upgrades. In addition, the company plans to build up to 2K new locations within the US, with a total of 9K stores in China and 2K in Japan by 2025. Therefore, we expect to see a moderate increase in its debt leveraging ahead from the $13.93B reported in the last quarter. Nonetheless, investors have nothing to worry about, since only $1.75B will be maturing by the end of 2023. Thereby, moderately ensuring SBUX's liquidity ahead. S&P Capital IQ Furthermore, SBUX seemed well poised for its aggressive expansion, given the robust Free Cash Flow ((FCF)) generation of $3.04B and an FCF margin of 9.5% in the LTM. Though these numbers are still shy of their pre-pandemic levels by -6.17% and -2.7 percentage points, respectively, we must also highlight the company's relatively stronger cash and equivalents of $3.18B on its balance sheet in the latest quarter. S&P Capital IQ For now, SBUX investors seem upbeat as well, due to the company's planned $20B of capital return over the next three years, in the form of dividend hikes and share buybacks. The management has guided an average of 2% dividend yield at the same time, representing notable improvements from the previous 4Y average of 1.88%. Combined with the consistent dividend hikes of 36.11% and $6.03B in share buybacks contributing to the moderation in its share count by -5.73% since FY2019, it is no wonder that the stock has performed decently, with a 5Y Total Price Return of 78% and 10Y Return of 313.1%. Mr. Market's Faith Has Been Restored - For Now S&P Capital IQ Over the next four years, SBUX is expected to report revenue and net income growth at an exemplary CAGR of 12.62% and 5.13%, in comparison to the 2Y pandemic CAGR of 5.73% and 8.03%, respectively. It is also evident that Mr. Market is relatively confident about the company's forward profitability, given the growth in its adj. net income margins from 9.4% in FY2019, to 10.1% in FY2021, and finally to 11.68% by FY2025. In the meantime, SBUX is expected to report revenues of $32.15B and net incomes of $3.33B for FY2022, representing an increase of 10.63% though a decline of -20.52% YoY, respectively. This indicates FQ4'22 revenues of $8.32B and net incomes of $926.7M, representing YoY growth of 2.2% though a decline of -47.47%, respectively. Otherwise, an excellent increase of 2.95% YoY in its net income after adjusting for the sale of its assets then. Impressive indeed, given the tougher YoY comparison due to the hyper revenue growth of 31.3% and net income of 229.21% experienced in FQ4'21. It is also remarkable that SBUX has optimistically guided a remarkable annual growth in its adjusted EPS by up to 20% through FY2025, despite the short-term worsening macroeconomics due to the rising inflation and the Fed's continuous hike in interest rates through CY2023. Furthermore, the company sees an impressive annual global comparable sales growth of up to 9% at the same time, contributing to its global revenue growth of up to 12% over the next three years.

Sep 19

Alibaba And Tencent: Reminiscent Of Google In 2009

Summary Within the shadows of geopolitical fears and a looming real estate collapse lie the deeply discounted empires of Alibaba and Tencent. BABA and TCEHY are comparable to Google in 2009. Is a 10x in the cards? Chinese citizens are structurally underinvested in stocks, but that’s about to change. In the decade ahead, we project returns of 20% and 18% per annum for Alibaba and Tencent. The Thesis While the risks are undeniable, the reward appears to justify an allocation to Alibaba Group Holding Limited (BABA, [[BABAF]]) and Tencent Holdings Limited (TCEHY, [[TCTZF]]). These stocks look a lot like Alphabet Inc. ([[GOOG]], GOOGL) ("Google") in 2009. We'll dig into why this opportunity exists, analyzing the macro uncertainties and geopolitical risks. While this is not for the faint of heart, it often pays to "buy when there's blood in the streets." As Cheap As Google In 2009? 2022, Tencent 2022, Alibaba 2009, Google P/E Ratio 13.1 11.8 11.6 Price To Sales 4.2 1.8 2.2 Price To Book 3.2 1.6 3.4 Return On Equity (ROE) 22% 13% 16% Net Margin 32% 15% 19% Note: Used forward estimates for Alibaba's PE, ROE, and Net Margin to adjust for significant asset write-downs and other non-cash items. Image created by author with data from YCharts. As you can see, Tencent is valued at a premium to Google in 2009, and Alibaba is valued at a discount to Google in 2009. However, Google was an inferior business to Tencent on a profitability basis and a superior business to Alibaba on the same metrics (Net Margin & ROE). In 2009, the American financial system appeared to be melting down. Businesses and households were capitulating and entering bankruptcy, while major banks like Lehman Brothers went under. A domino effect could have been set off if the federal reserve had not stepped in. This caused Google, a company with extremely strong fundamentals, to trade at such a depressed level that it went on to 10x over the decade ahead. Likewise, in 2022, the real estate bubble in China appears to be slowing imploding. Many estimate that China's enormous property developer, Evergrande Group could also go under. Not unlike the United States in 2008, Chinese citizens are heavily invested in real estate, and structurally underinvested in stocks. In fact, Chinese residential real estate is currently the world's largest asset class: Global Asset Classes (New Money) With Alibaba and others targeting a primary listing in Hong Kong, Chinese citizens will be able to trade its shares domestically for the first time. Like the U.S. over the past decade, we expect more and more Chinese capital to flow into the equity market. Consumption should also resume in the country, coming out of a difficult period of COVID-19 lockdowns and economic troubles. All of this should be a boon for the shares of Tencent and Alibaba. Deep Economic Moats While Tencent and Alibaba enjoy market leading positions in China within industries like gaming (Tencent) and the cloud (Alibaba), we believe each of these businesses has a key asset, which ties everything else together. For Tencent, that asset is WeChat and for Alibaba, that asset is Taoboa. WeChat could be the most dominant mobile app in the world; it's a super-app that encompasses Chinese social media, messaging, and mobile payments. While Alibaba's Alipay is a strong rival in mobile payments, WeChat is essentially the king in messaging and social media with 1.24 billion users. This is an exceptionally strong advertising avenue for Tencent. The company can boost its investees by pushing products on the app. Famed investor Mohnish Pabrai described WeChat as a "bazooka" that Tencent can fire at its competition. Alibaba's Taoboa has a similar network effect. Taoboa is the number one shopping platform in China. Combined with Alibaba's other commerce avenues, the company reaches more than 900 million consumers in China. Its brands are intertwined with businesses throughout the country, and entrenched in the minds of consumers. This allows Alibaba to sell advertising, cloud services, and premium memberships, while "making is easy to do business anywhere." Consumers in the Alibaba ecosystem enjoy the convenience of services like Ele.me delivery, Amap navigation, and Alipay mobile payments. Charlie Munger's lollapalooza effect applies to Taobao's shopping experience, which encompasses a great product, powerful stimulants, availability, clever marketing, and social proof. Tencent and Alibaba's economic moats are evident in their revenue growth: BABA Revenue ((TTM)) data by YCharts Over the past 8 years, Alibaba has grown its revenue at 35% per annum and Tencent at 23% per annum, all the while maintaining strong balance sheets. Fear And Uncertainty When it comes to Alibaba and Tencent, the discount exists not only due to economic hardship in China, but due to fear and uncertainty surrounding the geopolitical landscape. When Russia invaded Ukraine, sanctions were used as a deterrent. Russian stocks were barred from trading on many international exchanges. Recent tensions in the Taiwan Strait have caused many to fear war between China and Taiwan. Between this, the VIE structure, and China's CCP, the risks stretch far beyond internal operations. Just because these are financially and competitively resilient companies doesn't mean the stocks can't go to zero. Investors must weigh this risk appropriately within a diversified portfolio, more on this latter. The Valuation Tencent has a lot of investees; its equity portfolio is said to be worth $88 billion. Tencent is an early-stage investor, and its portfolio was once worth much more. The equity holdings had a lot of exposure to unprofitable tech, which melted down over the past year. Still, Tencent's portfolio represents 25% of its market cap. We suspect the equity portfolio is now closer to fair value as the excess drains out of the tech sector, especially in China.