Quantcast

Will Focus on Healthcare Revive Prestige Brands' (PBH) Stock?


Shutterstock photo

Strong consumption trends, especially in the healthcare segment, have been driving Prestige Brands Holdings Inc.PBH lately. This, in fact, propelled management to commence initiatives for transforming its business to focus solely on healthcare. Additionally, the company has been undertaking acquisitions to gain improved consumer reach. On the flip side, high costs and a sluggish cleaning business have been weighing on Prestige Brands' performance. Let's take a closer look into the aspects impacting this Zacks Rank #3 (Hold) company.

Strong Consumption Trends & Lucrative Buyouts

Prestige Brands boasts of strong consumption trends in most of its core brands. This trend particularly fueled the North American OTC Healthcare segment, during the first quarter of fiscal 2019. Prior to this, in fiscal 2018, Prestige Brands witnessed company-wide consumption growth of approximately 3%. Going ahead, in fiscal 2018, the company anticipates 2-3% growth in consumption rates.

Additionally, to maintain on growth track, the company pursues strategic mergers and acquisitions. The acquisition of Fleet in January 2017, one of its largest transactions, is expected to radically enhance Prestige Brands' growth prospects. In fact, the company is on track with building brands under the Fleet banner, such as Summer's Eve. Prior to this, in 2012, the company acquired BC and Goody's that expanded the company's distribution as well as enabled better customer reach. Other noteworthy acquisitions include DenTek Holdings, Inc in 2016 and Hydralyte in 2015.

Opportunities in Healthcare Bodes Well

Motivated by the strong consumption trends in healthcare, Prestige Brands recently revealed plans to completely transform business. Well, management already commenced initiatives to achieve the target by announcing plans to change corporate name to Prestige Consumer Healthcare, Inc. This move is an important milestone for the company that prides on having a strong portfolio of healthcare brands. Moreover, management stated that focusing on areas that have greater growth prospects, such as healthcare, will aid the company in utilizing resources efficiently.

Underlying Concerns

The company is facing year-over-year hikes in cost of sales for quite some time. Markedly, cost of sales inched up 0.2% in the first quarter of fiscal 2019. This was preceded by increases of 3.8%, 33.3%, 25.1% and 28.5% in the fourth, the third, the second and the first quarters of fiscal 2018, respectively.  Persistence of such high costs may pose a threat to the company's profitability. Moreover, higher freight and warehouse costs have been a drag on gross margin levels for long.

To top it, Prestige Brands' sluggish Household Cleaning business has been dampening the company's performance. Stiff competition and sluggish brands have been marring the segment for a while, which has been limiting top-line growth. Thanks to such soft trends, the company announced the divestiture of the household cleaning business in July 2018.

These headwinds have lowered investors' optimism in the stock. Shares of the company have lost close to 23.5% in the past year, against the industry 's rise of 6%.



Final Thoughts

We believe that the aforementioned headwinds can be cushioned by Prestige Brands' strategic initiatives. Moreover, the company continues to expect favorable impacts from tax rates, which is likely to offset negative impacts of higher costs. In fact, such trends were also witnessed in the company's first-quarter fiscal 2019 results. Further, we expect that Prestige Brands' focus on healthcare will enable efficient utilization of resources and also revive price performance.

Looking for Consumer Discretionary Stocks? Check These

Columbia Sportswear Company COLM , sporting a Zacks Rank #1 (Strong Buy), came up with an average positive earnings surprise of 79.3% in the trailing four quarters. It has a long-term earnings growth rate of 10.8%. You can see  the complete list of today's Zacks #1 Rank stocks here .

Michael Kors Holdings Limited KORS , also sporting a Zacks Rank #1, has an impressive earnings surprise history and a long-term growth rate of 6.8%.

Ralph Lauren Corporation RL , with a Zacks Rank #2 (Buy), has a solid earnings surprise history and a long-term earnings growth rate of 9.6%.

Will You Make a Fortune on the Shift to Electric Cars?

Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.

With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.

It's not the one you think.

See This Ticker Free >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Prestige Brand Holdings, Inc. (PBH): Free Stock Analysis Report

Michael Kors Holdings Limited (KORS): Free Stock Analysis Report

Columbia Sportswear Company (COLM): Free Stock Analysis Report

Ralph Lauren Corporation (RL): Free Stock Analysis Report

To read this article on Zacks.com click here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Business , Stocks
Referenced Symbols: PBH , KORS , COLM , RL



More from Zacks.com

Subscribe






Zacks.com
Contributor:

Zacks.com

Equity Research










Research Brokers before you trade

Want to trade FX?