JP Morgan Cazenove has restated its bearish outlook for European consumer staples industry and coupled it with downgrades for two key players.
It sees rising raw material costs as potentially hitting the bottom line of companies.
As such it has cut its earnings forecast by an across-the-board 2%, meaning it is now 5%-10% below consensus.
“Despite the staples sectors underperformance since June, valuation remains elevated and at risk to earnings downgrade as well as potential rise in yields,” the brokerage said in a note to clients.
“We expect the staples sector to remain polarised between highly valued winners (beauty, spirits, and ingredients) and value players at risks to outlook downgrades.”
In a note to clients, JPMC said it was downgrading Unilever (LON:ULVR) to ‘underweight’ and Coca-Cola HBC (LON:CCH) to ‘neutral’.
Shares in the former were down 2.25% in early afternoon trade, while stock in the latter was off 1.16%.
One of JPMC’s top picks in the sector with an ‘overweight’ rating is Reckitt Benckiser (LON:RB.). The shares were barely changed.