Will These 6 American Consumer Goods Stocks Outperform The Market?

Strong discretionary consumer spending and realization of structural cost actions implemented during the pandemic have Goldman Sachs analysts bullish on these American branded consumer goods companies.

The Consumer Goods Analyst: Brooke Roach initiated coverage of the stocks with Buy ratings and the following price targets:

• Lululemon Athletica, Inc. LULU — $447
• Kontoor Brands, Inc. KTB — $69
• Levi Strauss & Co. LEVI — $36
• PVH Corp. PVH — $127
• Ralph Lauren Corp. RL — $147
• Yeti, Inc. YETI — $113

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The Lululemon Takeaways: Lululemon is best positioned to capitalize on the consumer preference shift to athletic/casual apparel, said Roach.

The company is pursuing key growth categories in men’s apparel, inclusive size offerings, footwear, online direct-to-consumer sales and international markets, which should help capture additional wallet share, the analyst said. 

The Kontoor Takeaways: Kontoor’s fundamentals are gaining momentum, and brand awareness and distribution are beginning to scale following years of investment, Roach said.

Kontoor is shifting its sales channel exposure from dying retailers like Sears to its own direct-to-consumer business and fashion-forward retailers, the analyst said.

Consumer preference shifts to casual apparel will benefit many of Kontoor’s leading products, enhancing revenue growth and profitability, she said.

The Levi’s Takeaways: An emerging denim cycle, organizational agility and “best-in-class heritage positioning” set Levi’s up for improving fundamentals, Roach said. 

The company’s transformation from wholesale to omnichannel retail continues to be a “critical driver of gross margin expansion and dollar gains in EBIT profitability,” said the analyst.

The PVH Takeaways: PVH has undergone heavy restructuring through the pandemic, including C-Suite changes, corporate headcount reductions, pending sales of low-margin businesses, a focus on digital sales and expense control, all of which contributed $250 million to annual savings, said Roach.

PVH still faces pandemic-induced headwinds, said the analyst.

As headwinds subside, Goldman Sachs expects sustainable margin expansion from 2020 to 2023.

The Ralph Lauren Takeaways: Ralph Lauren is set to realize margin expansion from its online sales channels, which carry higher levels of profitability than wholesale channels, said Roach. Furthermore, the company reduced its wholesale door count by 35% and enacted several cost-cutting measures through the pandemic, she said.

The Yeti Takeaways: Yeti products remain bestsellers in their respective markets due to the brand’s credibility in offering durable products, said Roach.

This credibility has created a loyal customer base and supports future product line and market expansion, particularly in luggage and bags, said the analyst.

Yeti is also poised for operating margin expansion and higher returns on invested capital through its online sales channels, she said.

Price Action: As of the market close Wednesday: 

• LULU: Lululemon was up 1.68% to $376.99. 
• KTB: Kontoor Brands was up 1.42% to $57.68. 
• LEVI: Levi Strauss & Co. was up 4.15% to $29.88. 
• PVH: PVH was down 1.26% to $103.35. 
• RL: Ralph Lauren was down 0.85% to $113.69. 
• YETI: Yeti was down 1.43% to $91.

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