Consumer Analyst Leaves Behind Wall Street Turf Issues

Thomson Reuters
Feb 19, 2010

• Star consumer goods analyst enjoys freedom in own firm
• Doing broader reports than he could at a bank
• Sees tough year, pricing pressure on suppliers in 2010
• Top 2010 picks include Avon, Dr Pepper, Coke Enterprises

By Martinne Geller and Jessica Wohl BOCA RATON, Fla., Feb 18 (Reuters) - When star consumer goods analyst Bill Pecoriello left Morgan Stanley to start a boutique research firm, the stock market was just coming out of the doldrums and banks were trimming their ranks. Nearly a year later, he is thrilled he left the turf wars within large firms to dive deeper into research that banks were not doing. Pecoriello, chief executive of Consumer Edge Research which he started in April 2009, said his team can write more freely about prospects for the companies they cover and that all of the firm's 10 employees collaborate. "There's no turf differences between our beverage guy and our food guy. We are working together on every report," he said in an interview this week. In addition, there is no overarching management that has a say in what the firm should write about. "I love it, because I've always wanted to be an entrepreneur," he added. While on Wall Street, Pecoriello was named the top beverage analyst by Institutional Investor from 2003 to 2008 and a runner-up in the household/personal care and tobacco sectors. In 2008, he was also StarMine's No. 1 stock picker in the beverage sector and No. 2 in the household goods sector. Consumer Edge tracks the food, beverage, tobacco and household and personal care products sectors, and plans to cover international companies and more discretionary sectors, including retailers, down the road. For now, Pecoriello expects the consumer environment to remain very tough in the United States and Western Europe, with stronger growth in emerging markets. "We expect little pricing power and retailer pressure on the suppliers" this year, he said. Pecoriello's top stock picks for 2010 include Coca-Cola Enterprises Inc, Dr Pepper Snapple Group Inc and Avon Products Inc. He also has "outperform" ratings on PepsiCo, Kraft Foods Inc, Hansen Natural Corp and Clorox Co.

No Change In Access

Consumer Edge's strategy may sound familiar to those who follow technology or other sectors -- mixing equity and market research with reams of data and consulting, for a wider approach than a sell-side analyst could provide on his own. It follows a model created by earlier start-ups such as Gartner Group or Telsey Advisory Group, also founded by Wall Street veterans. Pecoriello's exit from the sell-side after 12 years was a rare occurrence among consumer products analysts. After working at strategy consulting firm Mars & Co, he was an analyst at Sanford Bernstein from 1996 until 2001 and then at Morgan Stanley from 2001 through late 2008. Pecoriello said his connections to the companies he follows has not changed now that he is on his own. "We're hosting events with the companies. The companies are reading our research .... There's no change in the access," he said, citing meetings with executives from Coca-Cola Co, Colgate Palmolive Co and Estee Lauder Cos Inc. Pecoriello said he is still asked "on a regular basis" to speak -- without pay -- to company sales teams, boards of directors or executive management, "to give my perspective on the industry and the competitive environment." While Pecoriello's distribution list has shrunk from more than 1,000 investors to a "much more focused client list," he is able to take a broader look at company strategies. A recent report suggested how Coke could respond globally to PepsiCo Inc's purchase of its two biggest bottlers. Consumer Edge proposed that Coca-Cola Femsa could buy U.S. assets from top Coke bottler Coca-Cola Enterprises, in turn giving Coke Enterprises cash to go out and acquire some European bottling operations now owned by Coke."We're able to totally write what we want about it. We don't have any restrictions," he said. At large Wall Street firms, analysts on different sides of the world often take care not to step on each others' toes, he said. Consumer Edge also conducts a monthly consumer survey of more than 2,600 U.S. households. (Reporting by Martinne Geller and Jessica Wohl; Editing by Richard Chang)

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