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The Hain Celestial Group, Inc. (HAIN - Analyst Report) offers a healthy investment opportunity for momentum investors even in a volatile market, which is well supported by its strong fundamentals and Zacks #2 Rank (Buy). Shares of this natural food and personal care product provider have been trending upward, inching closer to its 52-week high and amassing a year-to-date return of 52.4%.
The company remains well positioned to capitalize on the growing global demand for organic products through acquisitions, which has been a key strategy in building market share. The inherent strength in the stock is reflected through its third-quarter 2012 results, which included year-over-year EPS growth of 50% and a positive surprise of 8%.
Fabulous Quarter, Upbeat Guidance
Hain Celestial posted better-than-expected third quarter results on May 3, thanks to a rise in consumption, innovative marketing and wider distribution. The quarterly earnings of 54 cents per share surpassed the Zacks Consensus Estimate of 50 cents, and jumped from last years 36 cents.
Total revenue increased 31.5% year over year to $379.4 million. However, including sales of the United Kingdom private-label chilled ready meals operations (discontinued business), revenue came in at $400.3 million, up 39%. Operating profit grew 42% to $41.1 million, whereas operating margin expanded 80 basis points to 10.8%.
Buoyed by better-than-expected bottom-line results, management raised its fiscal 2012 earnings guidance to between $1.76 and $1.80 per share from its previous guidance of $1.63 to $1.73. The company expects sales in the range of $1.40 billion to $1.41 billion.
Earnings Estimate Revisions
The Zacks Consensus Estimate for fiscal 2012 increased 4% to $1.80 in the last three months, while for fiscal 2013 it advanced 5% to $2.10. The fiscal 2012 estimate is in line with the high-end of the companys guidance range, and implies year-over-year growth of 33.3%, whereas the fiscal 2013 estimate suggests an increase of 16.7%.
Valuation Reflects Fundamental Strength
Hain Celestial currently trades at a forward P/E of 26.4x, reflecting a 28.7% premium to the peer group average of 20.5x. Also, on a price-to-book basis, shares trade at 2.6x, a 24.3% premium to the peer group average of 2.1x. Given the companys compelling fundamentals, the premium valuation is justified and well supported by its long-term estimated EPS growth rate of 14.5% versus 12.7% for the peer group.
With respect to return on assets (ROA), the stock looks attractive. It has a 12-month ROA of 5.1%, which is above its peer group average of 4.6%. This implies that the company is utilizing its assets more efficiently than its peers.
Chart Echoing Strength
Shares of Hain Celestial had been trading in the range of approximately $34.00 to $48.00 since the beginning of this year. It broke that range on May 4 and started inching closer to its 52-week high of $57.42. The stock has been consistently trading above its 200-day moving average since October 18, 2011. It has also remained above the 50-day moving average since June 27, 2012.
Volume is fairly strong, averaging roughly 614K daily. Hain Celestial, which competes with General Mills, Inc. (GIS) and Kraft Foods Inc. (KFT), has outperformed the S&P 500 since the beginning of February 2012. The year-to-date return for the stock is 52.4% compared with the S&P 500s return of 7.6%.
Incorporated in 1993 and headquartered in Melville, New York, Hain Celestial produces, distributes, markets, and sells various natural and organic foods as well as personal care products in the United States, Canada and Europe. The company offers popular better-for-you groceries (non-dairy beverages and frozen desserts, flour and baking mixes, cereals, condiments, cooking oils, infant and toddler food, etc.), snacks (potato and vegetable chips, organic tortilla style chips, whole grain chips and popcorn, etc.), and tea (including herb teas such as Lemon Zinger, Peppermint, Mandarin Orange Spice, Cinnamon Apple Spice, Red Zinger, etc.). The company provides natural personal care products under brands such as
Avalon Organics, Alba Botanica, JASON, Zia, Queen Helene, and Earths Best TenderCare brands. The company has a current market cap of $2.48 billion.
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