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Here's Why Prestige Consumer Healthcare (PBH) Looks Promising

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Prestige Consumer Healthcare Inc. (PBH - Free Report) appears to be on solid footing, with its shares having gained 14.5% in the past three months against the industry’s decline of 17.6%. The company has been witnessing strength in the e-commerce business, courtesy of its robust investments in the arena. Also, the company has been focused on cost-saving efforts.

These upsides were witnessed in third-quarter fiscal 2021 results, wherein both earnings and sales surpassed the Zacks Consensus Estimate. Moreover, management raised its guidance for fiscal 2021. Incidentally, the Zacks Consensus Estimate for the fourth quarter and fiscal 2021 has gone up from 77 cents to 79 cents and from $3.18 to $3.24, respectively. Let’s take a closer look.

Prestige Consumer Healthcare Looks Firm

The company has been making e-commerce investments for a while now, which continued to yield results in the third quarter of fiscal 2021. Management, in its third-quarter earnings call, said that e-commerce consumption for Prestige Consumer grew in strong triple digits year to date, given consumers’ continued shift to online shopping. Incidentally, several brands of the company significantly contribute to the e-commerce channel compared with brick and mortar. With more consumers shifting to the online mode of shopping, especially amid the pandemic-led social distancing, the e-commerce channel is likely to remain strong.

Prestige Consumer Healthcare has been looking to reduce its advertising and marketing (A&M) costs, which as a percentage of sales came in at 15.9% in the third quarter of fiscal 2021, down from 16.1% in the second quarter. Management expects this metric to be just below 15% for fiscal 2021, as it remains committed to a normalized spending rate. Apart from this, the company expects G&A expenses for the full fiscal to be lower than the year-ago levels (in dollar terms). Certainly, the company’s saving efforts have been yielding results, as its adjusted EBITDA margin expanded 10 bps to 34.1% in the quarter under review.

Solid Q3 & Guidance

In third-quarter fiscal 2021, adjusted earnings of 81 cents per share surpassed the Zacks Consensus Estimate of 77 cents.  Though sales were hurt by lower consumption for certain product categories amid the pandemic, the company benefited from stable consumption trends in most parts of the portfolio. Also, adjusted gross margin and adjusted EBITDA margin improved year over year. Management remains impressed with its first nine-month performance of fiscal 2021.

The company said that its long-term brand as well as channel investments, together with its diversified portfolio, helped it win market share in several key categories, alongside driving triple-digit e-commerce growth. Such investments also helped the company largely counter pandemic-induced unfavorable demand in certain categories such as head lice, cough & cold and motion sickness. Management further stated that its robust financial status and strong capital allocation strategy aided the bottom line, EBITDA and free cash flow growth, on a year-to-date basis, even amid the crisis.

Robust operating results and performance to date encouraged management to raise its guidance for fiscal 2021. Management on its third-quarter earnings call said that it expects to continue witnessing the year-to-date domestic trends. Also, it expects continued enhancements in the International unit. Management projects its solid operating structure to aid high-single-digit earnings growth in fiscal 2021. In fiscal 2021, adjusted earnings per share are envisioned to be $3.22 compared with the previous view of $3.18. In fiscal 2020, Prestige Consumer’s bottom line came in at $2.96 per share. The company remains well placed for an even stronger performance in fiscal 2022.

All said, we believe that this Zacks Rank #2 (Buy) company is set to keep its stellar performance going.

3 Other Solid Consumer Discretionary Stocks

GIII Apparel Group (GIII - Free Report) has a Zacks Rank #1 (Strong Buy) and a long-term earnings per share growth rate of 11.6%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Spectrum Brands Holdings (SPB - Free Report) has a Zacks Rank #2 and its bottom line outpaced the Zacks Consensus Estimate by a wide margin in the trailing four quarters, on average.

Central Garden & Pet (CENT - Free Report) has a Zacks Rank of 2 and its bottom line outpaced the consensus mark by a significant margin in the trailing four quarters, on average.

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