Prestige Brands

Prestige Brands ( PBH - Snapshot Report )

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.