Major stock indices rose in the last trading session, providing Wall Street with some small relief. The Dow Jones Industrial Average rose 1.47%, the tech-heavy Nasdaq Composite climbed 3.8%, while the S&P 500 surged 2.4%. However, perplexed by galloping inflation and a cryptocurrency sell-off, the market still ended lower for the sixth consecutive week.
The consumer cyclicals sector usually relies on economic conditions and business cycles. Because consumer-cyclical companies are part of the discretionary class, consumers tend to spend less on their goods and services in a recessionary environment. However, despite inflation and market volatility, the United States job market is red-hot, underscoring the economy’s strong fundamentals. Nonfarm payrolls increased by 428,000 jobs last month, and average hourly earnings increased by 0.3%.
Against this backdrop, we think fundamentally strong consumer cyclical stocks Mattel, Inc. (MAT), WestRock Company (WRK), International Paper Company (IP), AutoNation, Inc. (AN), and Packaging Corporation of America (PKG) might be solid bets. These stocks have posted gains while the S&P 500 plummeted 15.6%.
Mattel, Inc. (MAT)
MAT in El Segundo, Calif., operates as a children’s entertainment company that produces toys and consumer products globally. The company functions through the broad segments of North America; International; and American Girl.
On May 10, MAT announced the launch of its WILD TWISTS PLAYING CARDS BY UNO, which allows players to play games like Poker, Go Fish, Gin Rummy, and UNO games. The playing cards are expected to be available beginning this month, which should add to the company’s revenue stream.
On March 29, MAT announced that it had entered multi-year global licensing agreement with Universal Brand Development for DreamWorks Animation’s Trolls, an animated franchise. The company has the licensing rights to develop a full line of toys for the franchise, which is expected to launch around the fall of 2023. This might prove to be beneficial for the company.
For its fiscal first quarter, ended March 31, MAT’s net sales increased 19.1% year-over-year to $1.04 billion. Its adjusted EBITDA rose 64.9% from the prior-year quarter to $152 million. Its adjusted net income per common share came in at $0.08, up substantially from its negative year-ago value.
The $0.06 consensus EPS estimate for its fiscal quarter ending June 30, 2022, indicates a 100% year-over-year increase. Likewise, the $1.10 billion consensus revenue estimate for the same quarter reflects a 7.4% improvement from the prior-year period. Furthermore, MAT has an impressive surprise earnings history; it has topped consensus EPS estimates in each of the trailing four quarters.
The stock has gained 22.4% in price year-to-date and 18.9% over the past month to close Friday’s trading session at $26.38.
MAT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
MAT has a Growth grade of A and a Quality grade of B. In the 23-stock Entertainment – Toys & Video Games industry, it is ranked #5. Click here to see the additional POWR Ratings for MAT (Value, Momentum, Stability, and Sentiment).
WestRock Company (WRK)
Norcross, Ga.-based WRK is a provider of fiber-based paper and packaging solutions. The company’s Corrugated Packaging segment makes containerboards, corrugated sheets, and preprinted linerboards, while the Consumer Packaging segment produces and sells folding cartons.
On April 29, WRK declared a $0.25 per share quarterly dividend on its common stock, payable to the company’s shareholders on May 24. This reflects WRK’s ability to pay back its shareholders.
WRK’s net sales increased 21.3% year-over-year to $5.38 billion in its second fiscal quarter, ended March 31, 2022. Its adjusted net income improved 112.9% from the same period in the prior year to $309.40 million, while adjusted EPS rose 116.7% from the prior-year period to $1.17.
Analysts expect WRK’s EPS to increase 49% year-over-year to $1.49 for the fiscal quarter, ending June 30, 2022. And the Street expects revenue for the same quarter to rise 13.8% from the prior-year quarter to $5.48 billion. In addition, WRK has topped consensus EPS estimates in each of the trailing four quarters. WRK’s stock has gained 4.2% in price year-to-date to close Friday’s trading session at $46.21.
It is no surprise that WRK has an overall B rating, which translates to Buy in our POWR Rating system. The stock has a B grade for Growth, Value, and Sentiment. It is ranked #4 of the 21 stocks in the Industrial – Packaging industry. The industry is rated A. To see the additional POWR Ratings for Momentum, Stability, and Quality for WRK, click here.
Click here to check out our Industrial Sector Report for 2022
International Paper Company (IP)
IP in Memphis, Tenn., is a packaging company that operates primarily in the United States, Europe, Africa, Asia, the Middle East, and the rest of the Americas. The company operates through the two broad segments of Industrial Packaging and Global Cellulose Fibers.
On May 10, IP declared a quarterly dividend of $0.4625 per share on its common stock and a regular quarterly dividend of $1.00 per share on its cumulative $4.00 preferred stock for the period April 1, 2022 -June 30, 2022. The dividend is payable to shareholders on June 15 and reflects the company’s cash generation ability.
On March 11, IP announced its intention, including a possible sale, of its 50% ownership interest in Ilim Group. The company declared that it has no intention to seek suspension of operations or initiate any liquidation or bankruptcy proceedings with respect to Ilim Group.
For its fiscal first quarter ended March 31, IP’s net sales increased 14% year-over-year to $5.24 billion. Its adjusted operating earnings and adjusted operating EPS came in at $288 million and $0.76, respectively, up 45.5% and 52% from the same period the prior year.
The $4.72 consensus EPS estimate for its fiscal year 2022 indicates a 47.5% year-over-year increase. Likewise, the $21.42 billion consensus revenue estimate for the same year reflects a 10.6% rise from the prior year.
The stock has gained 1.7% in price year-to-date and 0.8% over the past month to close Friday’s trading session at $47.79.
This promising prospect is reflected in IP’s POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
IP has a Value and Quality grade of B. In the 14-stock Industrial – Paper industry, it is ranked #7. The industry is rated A. Click here to see the additional POWR Ratings for IP (Growth, Momentum, Stability, and Sentiment).
AutoNation, Inc. (AN)
AN is an automotive retailer in the United States, operating through Domestic; Import, and Premium Luxury segments. Its offerings include a range of automotive products and services that include new and used vehicles, parts, and automotive repair and maintenance. AN is headquartered in Fort Lauderdale, Fla.
On February 23, AN priced $700 million of senior unsecured notes due 2032 at 3.850%. The company intends to use the net proceeds from the offering for general corporate purposes, which might include reducing borrowings, acquisitions, and share repurchases.
AN’s revenue increased 14.4% year-over-year to $6.75 billion in its fiscal first quarter, ended March 31, 2022. Its adjusted net income rose 54.9% from the prior-year period to $362.10 million. And its adjusted EPS improved 107.2% from the same period the prior year to $5.78.
The Street expects AN’s EPS to increase 25.9% year-over-year to $6.08 for its fiscal quarter ending June 30, 2022. The $7.02 billion Street’s revenue estimate for the same quarter reflects a 0.6% improvement year-over-year. In addition, AN has beaten consensus EPS estimates in each of the trailing four quarters.
AN’s shares have gained 5.8% in price year-to-date and 21.9% over the past month to close Friday’s trading session at $123.68.
AN has an overall A rating, which translates to Strong Buy in our POWR Rating system. The stock has an A grade for Value and a B grade for Growth and Quality. It is ranked #4 of the 24 stocks in the Auto Dealers & Rentals industry. The industry is rated B. To see the additional POWR Ratings for Momentum, Stability, and Sentiment for AN, click here.
Packaging Corporation of America (PKG)
PKG in Lake Forest, Ill., manufactures and sells containerboard and corrugated packaging products in the U.S. The company’s Packaging segment offers various containerboard and corrugated packaging products, while the Paper segment sells commodity and specialty papers.
On February 24, PKG declared a regular quarterly dividend of $1.00 per share on its common stock, which was payable to shareholders on April 15. This reflects upon the company’s shareholder return ability.
For its fiscal first quarter, ended March 31, 2022, PKG’s net sales increased 18.2% year-over-year to $2.14 billion. Its net income and EPS, excluding special items, stood at $255.70 million and $2.72, up 51.4% and 53.7% from the same period the prior year.
The Street’s $2.86 EPS estimate for the quarter ending June 30, 2022, reflects a 31.8% year-over-year improvement. And the Street’s $2.14 billion revenue estimate indicates a 19.9% year-over-year increase. PKG has topped consensus EPS estimates in each of the trailing four quarters.
The stock has gained 14.1% in price year-to-date to close Friday’s trading session at $155.40. It has gained 15.3% in price over the past six months.
PKG has an overall B grade, which equates to Buy in our proprietary rating system. The stock has a B grade for Stability, Sentiment, and Quality. It is ranked #8 in the Industrial – Packaging industry.
In addition to the POWR Rating grades we have stated above, one can see PKG ratings for Growth, Value, and Momentum here.
MAT shares were trading at $25.96 per share on Monday afternoon, down $0.42 (-1.59%). Year-to-date, MAT has gained 20.41%, versus a -15.19% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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