Barclays' Ratings Review: 2 Favorites, An Upgrade And 2 Downgrades

Although relative valuation in the U.S. CHPC & Beverages segment is approaching the pre-crisis levels, another phase of market rebalancing may be expected in 2017, “albeit less severe,” Barclays’ Lauren R. Lieberman said in a report. She downgraded the view on the industry from Positive to Neutral.

“Against a less supportive macro backdrop, we think fundamentals will return to the spotlight in 2017, and we have fairly muted expectations. It feels as though we are in uncharted waters,” Lieberman wrote.

Expectations For 2017

Lieberman mentioned the following five factors that would likely drive investment decisions and relative stock performance this year:

1. Dividend yield: favoring lower figures.
2. Geographic mix: favoring U.S.-centricity.
3. Portfolio mix: favoring discretionary.
4. Story stocks: favoring companies with prospects of a portfolio transformation and/or a long-term turnaround.
5. Willingness to adapt to consumer change.

Against the backdrop of these criteria, Newell Brands Inc NWL and Estee Lauder Companies Inc EL “score highest in our CHPC universe,” the analyst stated. She maintains Overweight ratings on both companies, while citing Newell as the Top Pick. The price targets have been reduced from $60 to $53 for Newell Brands and from $93 to $88 for Estee Lauder.

“We believe short-term integration noise and concerns around leverage are overshadowing the long-term growth and profitability story at Newell Brands. On Estee Lauder [...] we think current valuation does not properly reflect its peer leading sales and earnings algorithm, both versus Global Beauty and Consumer Staples,” Lieberman wrote.

Rating Changes

• International Flavors & Fragrances Inc IFF: Downgraded from Equal Weight to Underweight; price target reduced from $133 to $103.
• Kimberly Clark Corp KMB: Downgraded from Overweight to Equal Weight; PT reduced from $125 to $109.
• Clorox Co CLX: Upgraded from Underweight to Equal Weight; PT reduced from $115 to $111.