Prestige Brands Holdings, Inc.
) shares have been on an uptrend since the beginning of the year,
reaching a 52-week high of $21.26 the day after solid fiscal second
quarter results. This distributor of over-the-counter healthcare
and household cleaning products announced a positive earnings
surprise of nearly 30%, marking the fourth straight quarter with a
beat. PBH also raised its guidance for fiscal 2013.
With more than 72% year-to-date return, a long-term expected
earnings growth rate of approximately 13.1% and strong estimate
revisions, this Zacks #1 Rank (Strong Buy) stock looks like a solid
Strong Fiscal Second Quarter Results
On November 1, Prestige Brands reported fiscal second quarter
adjusted earnings of 42 cents per share, which topped the Zacks
Consensus Estimate by 27.27% and last year's earnings by 61.5%.
Revenues climbed 53.4% to $161.9 million. The improvement was
driven by the company's core over-the-counter (OTC) healthcare
products as well as contribution from 17 brands acquired from
GlaxoSmithKline in the fourth quarter of fiscal 2012. The company
recorded core OTC revenue growth for the ninth consecutive quarter.
Adjusted gross margin came in at 57% of revenues, compared to 51.1%
of revenues a year ago. The improvement in adjusted gross margin
was attributable to higher revenues generated by the OTC segment.
Earnings Guidance Raised
Prestige Brands raised its earnings forecast for fiscal 2013 to
between $1.37 and $1.42 per share. The previous guidance had
earnings of $1.22 to $1.32.
Moreover, Prestige Brands is working on reducing its debt level and
expects to exit fiscal 2013 with free cash flow of $110 million (in
line with the previous projection). Prestige Brands' leverage ratio
is currently 4.59, down from 5.25 at the beginning of the year.
Strong free cash flow should allow the company to continue pursuing
Earnings Estimates on an Upswing
Over the last 30 days, the Zacks Consensus Estimate for fiscal 2013
has increased 7.46% to $1.44 per share, aided by upward revisions
from all five estimates. This implies year-over-year growth of
Moreover, the Zacks Consensus Estimate for fiscal 2014 increased
6.04% to $1.58 over the same time frame, driven again by positive
revisions from all five estimates. The earnings estimate for fiscal
2014 represents a year-over-year increase of approximately 10.01%.
Premium Valuation Justified
Prestige Brands currently trades at a forward P/E of 13.94x,
reflecting a premium compared with the peer group average of
approximately 13.0x. Also, on a price-to-book basis, shares are
trading at 2.31x, a 23.5% premium to the peer group average of
1.87x. Given the company's strong fundamentals, the premium
valuation is justified and well supported by its long-term
estimated earnings growth rate of 13.1%, which is in line with the
peer group average.
With respect to return on equity (ROE), the stock looks attractive.
It has a trailing 12-month ROE of 15.6%, which is substantially
above its peer group average of 13.3%. This implies that the
company reinvests its earnings more efficiently than its peer
A Look at the Chart
The chart below shows that the share price has been generally
tracking the company's earnings performance. Given the increasing
trend of the Zacks Consensus Estimate, the share price should
Founded in 1996, Irvington, New York based Prestige Brands focuses
on the marketing, selling and distribution of household cleaning
products and brand name OTC products in the healthcare market. Key
customers include mass merchandisers, drug stores, supermarkets and
dollar and club stores. The company targets the US, Canada and
certain other international markets.
Prestige Brands, which has a market cap of $1.01 billion, is pretty
active on the acquisition front and has been growing its product
portfolio organically as well as through acquisitions. Depending on
the industry category, Prestige Brands' competitors include Johnson
& Johnson (
), Pfizer (
), Novartis (
) and The Procter & Gamble Company (
), among others.
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