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Hain Celestial - A Healthy Option

HAIN GIS

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A leader in natural food and personal care products categories with an extensive portfolio of well-known brands and strong fundamentals, The Hain Celestial Group Inc. (HAIN - Analyst Report) offers a healthy investment opportunity for investors, even in a volatile market. The stock is poised to surge as the economy gradually revives and the appetite for organic foods gets bigger.

An Attractive Investment Prospect

Hain Celestial remains a healthy option for the investors. Its shares have been portraying an upward trend, inching closer to its 52-week high of $73.72, and giving a year-to-date return of 96.8% considering the last traded price of $71.55 on September 10.

Moreover, the company’s last traded price was above the 50 and 200-day moving averages, which stand at $60.14 and $52.00, respectively. In fact, 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 August 17, 2012.

Since posting solid fourth-quarter 2012 results that included year-over-year earnings per share growth of 30.6% and a positive surprise of 4.4%, the share price has jumped roughly 25.7%.In view of the earnings surprise trend over the last seven quarters, Hain Celestial has topped estimates by an average of 5.6%.

Impressive Results

Hain Celestial posted better-than-expected fourth quarter results on August 22, thanks to a rise in consumption, innovative marketing and expanded distribution. The quarterly earnings of 47 cents per share surpassed the Zacks Consensus Estimate by a couple of cents, and surged from last year’s 36 cents.

Total revenue increased 22.3% year over year to $350.8 million. However, including sales of the United Kingdom private-label chilled ready meals operations (discontinued business), revenue came in at $373.8 million, up 28%. Operating profit grew 26.6% to $36.2 million, whereas operating margin expanded 36 basis points to 10.3%.

The company expects to sustain strong momentum as it remains well positioned to capitalize on the growing global demand for organic products through acquisitions. Management now expects sales to be in the range of $1.600 billion to $1.615 billion and earnings between $2.10 and $2.20 per share for fiscal 2013.

Acquisitions Driving Growth

Acquisitions have played a key part in Hain Celestial's strategy of building market share. These acquisitions have not only widened the company’s geographical presence, but have also provided opportunities to cross-sell products in the U.S., Canadian, and European markets.

Adding to the series, the company announced the acquisition of leading packaged grocery brands from Premier Foods plc, including Hartley's, Gale's, Robertson's, Frank Cooper's and Sun-Pat. The 200 million pounds ($316 million) cash and stock deal is expected to close by the end of October.

Earlier, Hain Celestial had completed the acquisition of U.K.-based marketer and manufacturer of fresh and frozen foods, Daniels Group ("Daniels"). The company also acquired Cully & Sully Limited in Ireland. The acquisition provides a gateway to a sturdy food and grocery market that is swiftly gaining ground.

The acquisition is expected to be accretive to its earnings upon completion. Moreover, it is expected to bring in incremental sales as it provides a strong foothold to the company in the packaged food and grocery market.

Closing Commentary

Going forward, we believe that the company will be able to mitigate the cost pressures through increased productivity and efficient pricing. Moreover, Hain Celestial has undertaken a number of initiatives to improve its performance and has put itself on the growth trajectory.

The company’s Stock Keeping Unit (“SKU”) rationalization program has helped eliminate SKUs, which had lower sales volume or weak margins. Hain Celestial, which competes with General Mills Inc. (GIS - Analyst Report) and Kraft Foods Inc. , holds a Zacks #1 Rank that translates into a short-term Strong Buy rating.

However, the company’s customers remain sensitive to macroeconomic factors including interest rate hikes, increase in fuel and energy costs, credit availability, unemployment levels, and high household debt levels, which may negatively impact their disposable income, triggering a shift in focus from higher priced organic products to cheaper private label brands. This may adversely affect Hain’s top-line performance. Currently, we maintain our Neutral recommendation on the stock.

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