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Can Prestige Consumer's Solid Healthcare Unit Aid Recovery?

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Prestige Consumer Healthcare Inc. (PBH - Free Report) has lost favor with investors owing to declining revenues. Incidentally, the stock has fallen 18.7% in the past three months, compared with the industry’s decline of 7.2%. Nevertheless, upon closer inspection, we note that the company carries sufficient growth prospects, backed by well-chalked buyouts and strong consumption trends in the healthcare unit. Let’s take a closer look at the factors impacting the company’s performance and see if there are chances of the stock’s turnaround.

Strong Consumption Trends and Lucrative Buyouts

Prestige Consumer has been gaining from strong consumption trend in some of its core brands, especially in the healthcare category. This trend particularly fueled the company’s North American OTC Healthcare segment during the second quarter of fiscal 2019.  We note that in fiscal 2018, Prestige Brands witnessed company-wide consumption growth of approximately 3%. Going ahead, the company anticipates 2-3% growth in consumption rates in fiscal 2019.

Moreover, we note that strong consumption trends in the healthcare category has prompted Prestige Consumer to transform its business. Well, management has already implemented initiatives to achieve the target by changing its corporate name to Prestige Consumer Healthcare, Inc from Prestige Brands Holdings Inc, during the second quarter of fiscal 2019. This move is an important milestone for the company that prides on having a strong portfolio of healthcare brands. Moreover, management stated that focusing on areas that have greater growth prospects, such as healthcare, will aid it in utilizing resources efficiently.

Additionally, Prestige Consumer pursues strategic mergers and acquisitions to boost growth. In 2012, Prestige Brands acquired BC and Goody's that aided expansion of the company’s distribution channel and gain better customer reach. Moreover, the acquisition of Fleet in January 2017 is one of the company’s largest transactions. Such buyouts are expected to radically enhance its growth prospects. Moreover, the company is on-track with its strategy of improving brands and marketing capabilities of its acquired businesses. In this respect, it recently launched new packaging for its BC & Goody’s brands. Other noteworthy acquisitions of the company include DenTek Holdings, Inc in 2016 and Hydralyte in 2015. Such initiatives have expanded the company’s portfolio and aided it in expansion.

Declining Revenues Pose Concerns

Prestige Consumer’s top-line declined during the first and the second quarters of fiscal 2019, owing to changes in accounting policies and packaging expenses of Goody’s and BC brands. Persistence of such headwinds is a threat to the company’s top-line performance. Additionally, adverse foreign currency translations and stiff competition are a threat.

Nevertheless, we expect the company’s booming healthcare business to aid in countering the aforementioned hurdles. Moreover, the company’s strong financial profile enables it to leverage on capabilities. Moreover, management’s favorable view for fiscal 2019 is a reflection of its continued business momentum and confidence in future prospects. We expect these factors to uplift investors’ sentiments regarding this Zacks Rank #3 (Hold) stock.

Looking for Consumer Discretionary Stocks? Check These

Crocs, Inc. (CROX - Free Report) , sporting a Zacks Rank #1 (Strong Buy), delivered an average positive earnings surprise of 126.3% in the trailing four quarters. The company has a long-term earnings growth rate of 15%. You can see the complete list of today’s Zacks #1 Rank stocks here.  

lululemon athletica inc. (LULU - Free Report) , a Zacks Rank #2 (Buy) stock, delivered average positive earnings surprise of 19.5% in the trailing four quarters. It has long-term earnings growth rate of 19.3%.

Under Armour, Inc. (UAA - Free Report) , a Zacks Rank #2 stock, has a long-term earnings growth rate of 22.8%.

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