Image: Bigstock
Consumer staples stocks are often associated with stability rather than excitement, but strong quarterly execution can still create compelling investment opportunities.
Better yet, when improving fundamentals coincide with rising earnings estimate revisions, investors may be looking at stocks with the potential to outperform even in uncertain market environments.
Two consumer staples names that fit this bill are Darling Ingredients (DAR - Free Report) and Newell Brands (NWL - Free Report).
Both stocks currently sport a Zacks Rank #1 (Strong Buy), reflecting favorable earnings estimate revisions following strong quarterly results last week, and they may serve as attractive defensive holdings if the latest market rally proves overextended.
Darling Ingredients Builds Momentum
As a global developer and producer of sustainable natural ingredients derived from edible and inedible bio-nutrients, Darling Ingredients posted an outstanding second quarter that highlighted the company's improving operational performance and strengthening financial position.
Darling reported Q2 adjusted net income of $387.3 million, surging from $12.7 million in the prior-year quarter. This translated into adjusted earnings of $2.41 per share, skyrocketing from Q2 EPS of $0.09 a year ago and crushing expectations of $1.45 by 66%.
Furthermore, adjusted EBITDA nearly tripled to $741.7 million, fueled by stronger margins, improved pricing, and robust performance from its ownership stake in Diamond Green Diesel. Notably, Diamond Green Diesel is a 50/50 joint venture between Darling and Valero Energy (VLO - Free Report), serving as the world’s second-largest renewable diesel fuel producer and North America’s largest.
Darling’s operational improvements came as Q2 sales climbed 16% to $1.72 billion. Although revenue came in slightly below expectations, management's focus on improving margins and disciplined execution translated into significantly higher profitability.
Image Source: Zacks Investment Research
Darling also showcased disciplined capital allocation by:
Reducing net debt by $223 million
Repurchasing $73 million of common stock
Receiving $280 million in cash distributions from Diamond Green Diesel
Looking ahead, management expects third-quarter core ingredients adjusted EBITDA of $325 million-$340 million while continuing to target further deleveraging through the remainder of fiscal 2026.
The improving outlook is particularly encouraging given Darling's unique business model, which transforms food waste and agricultural byproducts into renewable fuels, feed ingredients, and specialty products.
As renewable diesel demand and protein markets remain healthy, Darling appears well positioned to expand earnings and stands out with a relatively cheap forward P/E ratio of 9X despite DAR shares spiking more than 60% year to date.
Image Source: Zacks Investment Research
Newell Brands’ Turnaround Gains Steam
While Darling offers exposure to renewable fuels and sustainable ingredients, Newell Brands may represent one of the more overlooked value opportunities in the consumer staples space.
The maker of household brands including Rubbermaid, Sharpie, Graco, Coleman, Yankee Candle, and Paper Mate delivered strong quarterly results for its fiscal third quarter that comfortably exceeded top and bottom-line expectations.
Reinforcing confidence in its multi-year turnaround efforts, Newell Brands’ adjusted net income increased 78% year over year to $180 million from $101 million in the prior year period. This translated into Q3 adjusted EPS of $0.42, spiking from $0.24 per share a year ago and crushing expectations of $0.19 by 121%.
Image Source: Zacks Investment Research
Despite the improving fundamentals, Newell Brands stock still trades at just $6 a share, and at a reasonable 11X forward earnings multiple. For value-oriented investors, that combination of affordable stock price, inexpensive earnings multiple, and rising earnings estimates can create an appealing risk-reward profile.
If management keeps executing on its cost-cutting initiatives, product innovation, and margin improvement strategy, Newell Brands stock could have meaningful upside as investor sentiment improves alongside its earnings outlook.
Image Source: Zacks Investment Research
More intriguing is that NWL shares have also soared over 60% year to date and still offer an enticing 4.4% annual dividend yield that towers over the S&P 500’s average of 1.02% and the Zacks Consumer Staples Market’s 2.97%.
Image Source: Zacks Investment Research
Bottom Line
Although consumer staples are generally viewed as defensive investments, Darling Ingredients and Newell Brands demonstrate that the sector can still offer attractive growth opportunities.
Darling is benefiting from improved renewable fuel economics, strong cash generation, and disciplined capital allocation. Meanwhile, Newell Brands offers investors an intriguing turnaround story with a rather inexpensive valuation.
In addition to their strong buy ratings, Darling and Newell Brands stock also have an overall “A” VGM Zacks Style Scores grade for the combination of Value, Growth, and Momentum.
Comments
Log in or sign up to join the conversation.