The Cost and Scarcity of Growth - Why CPG Multiples Have Reset

Deutsche Bank examines why US Consumer Staples (CPG) multiples have reset. Beyond temporary factors such as defensive positioning and low ownership, much of the sector's de-rating appears fundamentally justified. The analysis centers on four valuation variables: Growth, the Cost of Growth, Duration, and Risk. Growth is becoming harder to generate, more expensive to generate, and less certain to sustain, while higher leverage is more burdensome as debt reprices at higher rates. The end of the "bond-proxy" era and structurally higher neutral rates reduce the scarcity value of dividend-paying equities. By subsector, Food trades at roughly 12.3x forward earnings, 28% below its 15-year average of 17.1x; HPC at about 19.8x;