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Prestige Brands - Value
Earnings momentum for Prestige Brands Holdings, Inc. ( PBH ) 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 environment.
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 by 52.2%.
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 continue increasing.
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 ( JNJ ), Pfizer ( PFE ), Novartis ( NVS ) and The Procter & Gamble Company ( PG ), among others.
PRESTIGE BRANDS (PBH): Free Stock Analysis Report
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