Prestige Brands Holdings, Inc. ( PBH - Snapshot Report ) shares have been on an uptrend since the beginning of the year, reaching a 52-week high of $21.26 the day after solid fiscal second quarter results. This distributor of over-the-counter healthcare and household cleaning products announced a positive earnings surprise of nearly 30%, marking the fourth straight quarter with a beat. PBH also raised its guidance for fiscal 2013.

With more than 72% year-to-date return, a long-term expected earnings growth rate of approximately 13.1% and strong estimate revisions, this Zacks #1 Rank (Strong Buy) stock looks like a solid growth pick.

Strong Fiscal Second Quarter Results

On November 1, Prestige Brands reported fiscal second quarter adjusted earnings of 42 cents per share, which topped the Zacks Consensus Estimate by 27.27% and last year’s earnings by 61.5%.

Revenues climbed 53.4% to $161.9 million. The improvement was driven by the company's core over-the-counter (OTC) healthcare products as well as contribution from 17 brands acquired from GlaxoSmithKline in the fourth quarter of fiscal 2012. The company recorded core OTC revenue growth for the ninth consecutive quarter.

Adjusted gross margin came in at 57% of revenues, compared to 51.1% of revenues a year ago. The improvement in adjusted gross margin was attributable to higher revenues generated by the OTC segment.

Earnings Guidance Raised

Prestige Brands raised its earnings forecast for fiscal 2013 to between $1.37 and $1.42 per share. The previous guidance had earnings of $1.22 to $1.32.

Moreover, Prestige Brands is working on reducing its debt level and expects to exit fiscal 2013 with free cash flow of $110 million (in line with the previous projection). Prestige Brands’ leverage ratio is currently 4.59, down from 5.25 at the beginning of the year. Strong free cash flow should allow the company to continue pursuing product acquisitions.

Earnings Estimates on an Upswing

Over the last 30 days, the Zacks Consensus Estimate for fiscal 2013 has increased 7.46% to $1.44 per share, aided by upward revisions from all five estimates. This implies year-over-year growth of approximately 45.25%.

Moreover, the Zacks Consensus Estimate for fiscal 2014 increased 6.04% to $1.58 over the same time frame, driven again by positive revisions from all five estimates. The earnings estimate for fiscal 2014 represents a year-over-year increase of approximately 10.01%.

Premium Valuation Justified

Prestige Brands currently trades at a forward P/E of 13.94x, reflecting a premium compared with the peer group average of approximately 13.0x. Also, on a price-to-book basis, shares are trading at 2.31x, a 23.5% premium to the peer group average of 1.87x. Given the company’s strong fundamentals, the premium valuation is justified and well supported by its long-term estimated earnings growth rate of 13.1%, which is in line with the peer group average.

With respect to return on equity (ROE), the stock looks attractive. It has a trailing 12-month ROE of 15.6%, which is substantially above its peer group average of 13.3%. This implies that the company reinvests its earnings more efficiently than its peer group.

A Look at the Chart

The chart below shows that the share price has been generally tracking the company’s earnings performance. Given the increasing trend of the Zacks Consensus Estimate, the share price should continue increasing.

Founded in 1996, Irvington, New York based Prestige Brands focuses on the marketing, selling and distribution of household cleaning products and brand name OTC products in the healthcare market. Key customers include mass merchandisers, drug stores, supermarkets and dollar and club stores. The company targets the US, Canada and certain other international markets.

Prestige Brands, which has a market cap of $1.01 billion, is pretty active on the acquisition front and has been growing its product portfolio organically as well as through acquisitions. Depending on the industry category, Prestige Brands’ competitors include Johnson & Johnson (JNJ), Pfizer (PFE), Novartis (NVS) and The Procter & Gamble Company (PG), among others.

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