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Consumer staple stocks don’t have to fall in the “defensive
only” category, nor do they have to offer sub-par performance in a booming
stock market. This is especially true if
they are strong, growing brands under good management.
One company that fits this description and stands out among their
peers is Prestige Brands, Inc (PBH - Snapshot Report). Prestige markets, sells and distributes
over-the-counter healthcare, household cleaning products and personal care
products to retail outlets in the US, Canada, and certain international
Their recognizable brands can be found around your home and
medicine cabinet, they include everything from Luden’s cough drops and Tagamet
to Comet cleaner, Cloreseptic, Clear Eyes drops and more.
Most people wouldn’t expect a 100% annual return from a
staple stock like PBH, but that’s exactly what shares have done since I last
mentioned them on February 16th, 2012 as a momentum stock.
Consistent, Strong Earnings Trends
One year ago, Prestige
Brands was a small-cap ($681 million) company trading at about 15.6 times
trailing earnings (P/E) or roughly $12 per share.
After four earnings beats at an average of
16.37% over Zacks Consensus Estimates, shares are now at $24 and trading at
about 16 times forward earnings (still not terribly expensive). Their market cap has obviously doubled in that
On February 7th, Prestige earnings beat the Zacks
Consensus by almost 9%. The company
reported adjusted Q3 EPS of 37 cents, up 48% from a year ago.
Revenue climbed 51% to $160.2 million, beating views. It
cited strength across its line of over-the-counter medicines and household
Prestige now expects full-year EPS of $1.45 to $1.48, vs. previous
analyst forecasts for $1.43. That implies Q4 EPS of 31-34 cents versus the
29-31 cent prior consensus. These strong estimates equal a positive ESP for the
coming quarter which when combined with a Zacks Rank 1 or 2 gives PBH a high probability
of beating estimates and moving higher in the current quarter.
Q3 Revenues for PBH’s over the counter healthcare (OTC) segment
were $139.0 million, 63.7% higher than the prior year's third quarter results
of $84.9 million. The increase in revenues in the OTC segment was a result of
the increased marketing and advertising support behind the Company's core OTC
Revenues for the Household Cleaning segment, which
represents approximately 13% of corporate revenues and 7% of brand
contribution, were $21.2 million in Q3, approximately even same quarter results
from a year ago.
Year-to-date revenues for the Household Cleaning segment
were $65.9 million, an 8.2% decrease over the prior year comparable nine month
period's results of $71.8 million. I
guess people are medicating more and cleaning less…
Increase in cash
flow, decrease in debt
For the nine month period ended December 31, 2012, free cash
flow totaled $92.0 million compared to $47.6 million in the prior year's
comparable period; a 93% increase.
The Company's net debt at December 31, 2012 was $997.1
million, down $63.9 million during the quarter. This consisted of approximately
$42 million of cash flow from operations and approximately $22 million of
proceeds realized from the previously announced divestiture of Phazyme gas
Aside from the positive outlook from the executive team, I
think there is something to be said about their brand positioning and sector.
At 16 times forward earnings, PBH can no longer be
considered a “value” stock, but given their growth record and high demand for their
products in a flat economic climate there is potential for the stock to move
From a fundamental standpoint PBH has a unique angle in the
growing OTC market. Over time, often 3–6
years, drugs that prove themselves safe and appropriate as prescription
medicines may be switched from prescription to OTC. At that point they can be
branded and sold by companies like Prestige.
Given the current state of healthcare and the ongoing
reforms, you can expect an increase of folks moving towards lower cost OTC
remedies like those offered by Prestige.
There is no doubt competition from the store-brand OTC remedies and
cleaning products, but with steady marketing and a healthy economy, the best
and most popular brands should continue to attract consumers.
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