Earnings momentum for
Prestige Brands Holdings, Inc.
) has been gaining since this over-the-counter healthcare and
household cleaning products company reported strong fiscal first
quarter results. The Zacks #2 Rank (Buy) has delivered surprises
over the last three quarters despite the tough economic and retail
The stock is significantly undervalued, with a forward
price-to-earnings (P/E) multiple of just 11.8 and a price-to-book
(P/B) multiple as low as 1.90. In addition to the valuation, solid
results and a conservative guidance make this company an attractive
pick for value investors.
Solid Fiscal First Quarter Results
On August 7, 2012, Prestige Brands announced that fiscal
first-quarter revenues jumped 54.2% year-over-year to $147 million.
The improvement was driven by the company's core 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 an eighth consecutive quarter.
Earnings per share of 35 cents surpassed the Zacks Consensus
Estimate of 29 cents by 20.7% and the year-ago earnings of 23 cents
Gross margin came in at 56.9%, well above 52.3% in the prior-year
quarter. The improvement in gross margin was attributable to higher
revenues generated by the OTC segment.
The company continues to expect earnings between $1.22 and $1.32
per share for fiscal 2013. Considering the strong first quarter
fiscal 2013 results, Prestige Brands looks poised to achieve or
beat its guidance. The company continues to work on reducing its
debt level and expects to exit fiscal 2013 with free cash flow of
$110 million. Prestige Brands' leverage ratio is currently 4.75,
down from 5.25 at the beginning of the year. Strong free cash flow
should allow the company to continue pursuing product acquisitions.
Earnings Estimates on an Upswing
Over the last 30 days, the Zacks Consensus Estimate for fiscal 2013
has increased 3.9% to $1.34 per share, aided by upward revisions
from all five estimates. This implies year-over-year growth of
35.4%. Moreover, the Zacks Consensus Estimate for fiscal 2014
increased 2.1% to $1.49, with four of five estimates moving upward.
In addition to low P/E and P/B multiples, Prestige Brand's PEG
ratio of just 0.96 indicates that the stock is reasonably valued
given the expected long-term growth of 12.3%. Moreover, a P/E ratio
below 15.0 and a P/B ratio under 3.0 generally suggest value.
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 $794.09 million, is
pretty active on the acquisition front and has been growing its
product portfolio organically as well as through acquisitions. The
company's aim is to generate 85% of its revenues from OTC products
by the end of fiscal 2013. Depending on the industry category,
Prestige Brands' competitors include Johnson & Johnson (
), Pfizer (
), Novartis (
) and The Procter & Gamble Company (
), among others.
PRESTIGE BRANDS (PBH): Free Stock Analysis
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