Shares of Spectrum Brands Holdings Inc. (SPB) continue to rally on the index and hit a new 52-week high of $90.94 on Friday, Sep 26, before closing a notch lower at $90.22. Moreover, the stock has amassed a year-to-date return of 29.3%.
Although the company has been on the rise since it posted better-than-expected bottom-line results for third-quarter fiscal 2014, we believe it further gained momentum on account of its last week’s announcement of acquiring The Procter & Gamble Company’s (PG) European Pet Foods business that includes premium brands like IAMS and Eukanuba for dogs and cats. The deal has been approved by Spectrum Brands’ board and is expected to be completed in 2015.
The acquisition will form a part of the company’s United Pet Group division, which manufactures products for the global pet supplies market and has well known brands like Tetra, Marineland, FURminator, Nature’s Miracle and Dingo to its credit. Generating annual sales of about $200 million, this business will provide significant product brand equity and has the potential to enhance margins.
The acquisition of these complementary brands will help Spectrum Brands’ United Pet Group division to expand into the $21 billion European dog and cat food market, which is progressing with a growth rate of 3% to 5% annually. Further, addition of these brands will strengthen the division’s companion animal product portfolio while bringing stability in it as well as in the aquatics segment’s portfolio.
Spectrum Brands’ emphasis on expansions and acquisitions in order to drive long-term growth has always appealed to investors. In early 2014, the company ventured into a new product line with the acquisition of leading animal repellents company, The Liquid Fence Company Inc.
Investor optimism also surrounds the company’s third-quarter results, reported in July, wherein earnings per share surged 44.4% year over year and net sales recorded 3.6% growth. On an average, the stock has delivered a positive earnings surprise of roughly 2.1% over the last 4 quarters. The company also has long-term EPS growth of 16%, greater than the peer group growth rate of 10.6%.
Spectrum Brands is a branded consumer products retailer that has been undertaking efficient cost-cutting measures with plans to implement a better pricing strategy. Also, it remains committed to generating solid free cash flows, reducing debt levels and enhancing adjusted EBITDA to boost shareholder value. With these continuous efforts, the company is likely to achieve its growth objectives and see strong performance.
Other than Spectrum Brands, Nike Inc. (NKE) and L Brands, Inc. (LB) also reached 52-week highs of $89.99 and $68.61, respectively, on Sep 26, 2014.
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