BofA Securities analysts Bryan D. Spillane, Lisa K. Lewandowski and Peter T. Galbo have put forward on Tuesday their research findings on consumer staple companies in the face of a potential recession.
The analysts said consumer staples have historically outperformed the S&P 500 in most recent recessions, suggesting a defensive edge.
However, the analysts warned that current conditions, such as lingering high prices and weak volume growth, may limit their resilience in a future downturn.
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Still, their limited exposure to new tariffs could make the sector more appealing than others, potentially helping sustain valuation multiples.
During recessions, the Consumer Staples sector stock prices are primarily influenced by earnings per share (EPS) rather than sales growth.
Analysis shows that forward EPS estimates account for over 90% of stock price movement across key subsectors like Beverages, Household & Personal Care (HPC), Packaged Food, and Tobacco, with the correlation being the tightest Beverages and HPC.
The analysts noted that this highlights the critical importance of earnings strength when evaluating stock performance in uncertain economic conditions.
A review of six past recessions reveals that certain Consumer Staples stocks consistently outperformed the S&P 500.
Campbell Soup Co. (NYSE:CPB), Colgate-Palmolive Co. (NYSE:CL), General Mills Inc. (NYSE:GIS), McCormick & Co. (NYSE:MKC), PepsiCo Inc. (NASDAQ:PEP), and Hormel Foods Corp. (NYSE:HRL) each posted a 100% success rate in outperforming the index during those downturns.
In the last four recessions with the most comprehensive data, McCormick, General Mills, and Church & Dwight Co. Inc. (NYSE:CHD) delivered the strongest relative performance.
Top-performing Consumer Staples stocks in a potential downturn will likely share three traits: profit flexibility to offset revenue pressure and rising costs, strong U.S. manufacturing presence to limit tariff-related inflation, and solid balance sheets capable of sustaining share buybacks to boost earnings per share.
Analysts see McCormick, Coca-Cola Co. (NYSE:KO) and Philip Morris International Inc. (NYSE:PM) as well-defended, with Keurig Dr Pepper Inc. (NASDAQ:KDP), Molson Coors Beverage Co. (NYSE:TAP) and Altria Group Inc. (NYSE:MO) in the next tier of potential outperformers.
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