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Prestige
Brands (PBH)
Just
a month ago, we first featured PBH as a
value stock that was worth looking into.
In less than 30 days since that report the stock has gained 20% in
value, reported a strong quarter and has built quite a bit of momentum
behind
it. The stock is currently consolidating near its
52-week high and could be poised for another leg up. Even
with its recent run, Prestige Brands is
still fairly valued from an earnings perspective and is still a Zacks
Rank #1 Strong
Buy.
As
the market melts higher and investors look
for stability combined with growth, consumer staple stocks like PBH
shouldn’t
be ignored. Keep in mind that Prestige has a little more pep in its
step than a
stock like Johnson & Johnson.
Company Description &
Developments
Prestige Brands is a consumer products holding company that markets,
sells and
distributes some of the most recognized brands in the US and Canada as
well as
parts of Europe. They sell dozens of brands, from Luden’s
cough drops and
Tagamet to Comet cleaner, Cloreseptic, Clear Eyes drops and more.
Its
products are an integral part of everyday
life and will generally sustain well in stagnant or slow economies.
While
staples may not take off in bull markets, they will generally
participate. Small Cap Value stocks like Prestige Brands will
offer a little more beta (volatility) than their larger peers like
Procter
& Gamble and Johnson & Johnson.
Prestige
just reported fiscal (2012) third
quarter results on February 9th and saw net income more than
quadruple compared to the same quarter one year ago. The
company cited key acquisitions and strong
sales of some of their over-the-counter (OTC) health care products.
Matthew M. Mannelly, CEO, noted, “We
are pleased with our third quarter results, which reflect the
successful
execution of our stated strategy of core OTC growth combined with
value-added
acquisitions. We registered strong growth from our nine core OTC
brands,
resulting in solid market share gains across these categories. Both the
Little
Remedies brand and the PediaCare brand, which we acquired last year,
experienced impressive revenue and share gains for both the quarter and
the
nine month year-over-year periods, despite a very soft cough/cold
season. In
addition, our diversified portfolio of OTC brands and platforms helped
offset
the headwinds of a tough cough/cold season.”
Financial Profile &
Earnings
Prestige Brands is a small-cap ($681 million) company that is trading
at about 15.6
times trailing earnings (P/E). Looking forward, Zacks
Consensus Estimates
are calling for that number to drop closer to 13.5, given no change in
price
over the next year. Prestige Brands became a Zacks Rank #1
Strong Buy on January
17th, at which time it was trading at $11.25.
They
reported net income of $9.5
million, or $0.19 per diluted share for Q32012, 336.6% higher than the
prior
year’s comparable quarter of $2.2 million, or $0.04 per diluted share.
The holding
company reported a quarterly sales increase of 2% at their last
earnings
report. Annual sales were up 17.45% compared to Q32011.
To date, PBH has total sales of roughly
$333.72 million. Prestige is expected to earn $0.96 per share
in FY2012
according to the Zacks Consensus Estimate.
Excluding the costs mentioned above in each of the respective
periods, net
income for the current third fiscal quarter would have been $12.5
million, or
EPS of $0.25, compared to $10.3 million in the prior year’s comparable
quarter
of EPS of $0.21. Net income for the first nine months of fiscal 2012
was $37.2
million, or 63.2% higher than the prior year’s comparable period of
$22.8
million.
Moving Forward
The company also completed the acquisition of
fifteen of the seventeen OTC brands it agreed to purchase from
GlaxoSmithKline (GSK). The acquisition
of the remaining two brands from GSK is expected to be completed during
the
first half of the year.
The CEO said, “Outlook for Q4 is one of cautious optimism given the
challenging
economic and retail environment, as well as the overall incident level
of the
cough/cold season to date. The GSK acquisition is expected to add
approximately
$30 million to our fourth quarter revenue and be neutral to EPS,
excluding
transaction-related and integration costs.”
It
seems that Prestige is growing and improving
profitability despite a lackluster economic landscape. They
did see sales growth of 3.2% in their 5
core products and expect growth to continue albeit cautiously in the
coming
quarter.
Market Performance &
Technicals
Momentum has really become apparent since the stock broke out of its
sideways
channel in December. Interestingly
enough, this pattern is almost a repeat of what happened in mid-2010.
When the stock emerged out of the channel in
September of 2010, the stock ran from about $8.00 to $12.00 (50%)
within the
course of three months.
A
repeat of that action could put the stock up
around the $16-$18 level from here.
Depending
on the evolution of consumer strength
(and health) here in the US, that rally could be possible.
PBH is firmly above its 50- and 200-day
moving averages of $11.66 and $11.14 respectively. You can
look for that area to be support from
here. Prestige should also find a little
sticky support at the $13 level.
PBH has exceeded the S&P 500’s performance
by over 20% in the past year, 35% over the past 12 weeks and almost 12%
just
over the last month. With a beta of 1.5, PBH will
generally move
with the major indices and then some…
Jared A Levy is the
Momentum Stock Strategist
for Zacks.com. He is also the Editor in charge of the market-beating Zacks
Whisper Trader Service.
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