The Strength in Consumer Staples: What’s Up With That? – Campbell Soup Company (CPB), ConAgra Foods, Inc. (CAG)

Smucker’s surprised on its February 15 earnings release against the higher bar raised by analysts. This is another company turning around its old image of the gingham pattern jarred jams with dozens of new and international brands including household coffee brand Folger’s. But Smucker’s  may seem overvalued  compared to new competitor Mondelez International Inc (NASDAQ:MDLZ) which has a PEG of 1.37 and a P/E of 16.34.

Smucker’s, like The Home Depot, Inc. (NYSE:HD), has been a Wall Street fave these last few years running from the mid-$30s to its all time high of $95.30 close on February 28. It’s a low beta name (.45) with pricing power and analysts have a median target of $100 which leaves little room for upside.

The Omaha Connection

Buffett’s purchase of Heinz surprised those who thought that Omaha based ConAgra Foods, Inc. (NYSE:CAG) would be a natural for Buffett if he was shopping in the food aisle. Likely, Buffett was looking for a more global and iconic brand. ConAgra has many familiar and enduring brands in its Consumer Foods division: Chef Boyardee, Blue Bonnet, Pam, Peter Pan, Hunt’s, and the just completed acquisition of Ralcorp. It also has a Commercial Foodservice division of commercially branded foods and seasonings. ConAgra operates primarily in North America, however.

ConAgra has outperformed both these other names over the last year up 30.49% . It also has the highest yield at 3.00% with a 60% payout ratio. The P/E is the highest at 21.52 and the PEG at 1.80. It has the highest EV/EBITDA at 11.53.

On February 19 CEO Gary Rodkin updated and raised guidance adding  the Ralcorp purchase should add $0.05 for a raised outlook of $2.15 diluted EPS  for FY2013 and adding $0.25 for FY2014.. He said the dividend would be maintained at its current rate and debt from the acquisition will be a priority until 2015.

Make Room At The Party

Looking at the five year chart Smucker’s is the obvious outperformer but after the Heinz takeover the other two are starting to ketchup (pun intended.) At these highs it wouldn’t be prudent to go all in especially not in Smucker’s. Campbell’s with its metrics mostly smack dab in the middle of ConAgra and Smucker’s would be my choice for a defensive staple. The company is introducing new products, healthy products and convenient products and putting some ad money and social media to work on these.

None of these are momo names that are going to get you dancing like on “What’s Up With That?” but they won’t leave you wondering why did they go down. If the market does tick down these won’t decline as badly as they are still defensive names.

The article The Strength in Consumer Staples: What’s Up With That? originally appeared on Fool.com and is written by AnnaLisa Kraft.

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