As the November 2024 elections approach, Citi analysts assessed key themes that could impact the US consumer sector based on policy proposals from the two leading candidates, President Joe Biden and former President Donald Trump.
Citi notes the first presidential debate on June 27 left many questions unanswered, but they believe it is crucial for investors to consider potential policy changes and their effects on consumer companies.
Key Election Themes: Citi identified five main themes likely to impact US consumer companies: changes in corporate taxation, trade policies, and tariffs, labor policies and the minimum wage, immigration policies, and cannabis legislation.
Democratic Proposals: The bank acknowledges that President Joe Biden's proposals include potentially increasing the federal corporate tax rate after the expiration of the Tax Cuts and Jobs Act (TCJA) in 2025 to prevent a tax hike on the middle class and small businesses.
They explain that this increase aims to fund investments in infrastructure, manufacturing, and clean energy. Biden's policies also focus on targeted de-risking with China, domestic subsidies, raising the minimum wage, and advancing cannabis legalization.
Republican Proposals: The bank says Donald Trump's proposals emphasize extending the TCJA without raising the 21% corporate tax rate and significantly increasing tariffs on Chinese imports, among others.
Citi adds that Trump's policies are expected to be more restrictive on immigration and labor, potentially increasing deportations of undocumented immigrants.
Sector Implications: In the Beverage & HPC sector, Citi says US-centric companies like SAM, STZ, KDP, CHD, and CLX could be most affected by corporate tax changes.
They highlight NWL as highly exposed to tariffs on Chinese imports, while STZ is seen as potentially impacted by changes in immigration policies and tariffs on Mexican imports. In Food, companies like CAG, BRBR, SJM, CPB, and HRL are seen as having high exposure to tax policy changes, and CAG, CPB, FRPT, and SJM expected to be vulnerable to labor policy shifts.
In Retail, EYE, DLTR, ANF, BJ, and ULTA are considered companies that might face negative impacts from corporate tax hikes, while SHOO, OXM, and FIVE are believed to be at risk from tariff increases. Hardlines Retail, including BBY and BOOT, could be heavily impacted by China tariff risks, adds Citi.
Meanwhile, the bank says restaurants may see risks related to the taxation of tips, especially in full-serve and fast-casual concepts. Lastly, in Leisure, they point to PII and DOO as potentially significantly affected by changes in tariffs due to their production footprints.
Investors should closely monitor these developments as the election approaches, considering how each candidate's policies might shape the future of the US consumer sector.