Get Defensive With This Consumer Products Company
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Any balanced portfolio should contain a few defensive stocks in order to balance out risk. Non-durable Consumer Products are a typically defensive industry, as these products will be needed regardless of the macro-economic situation.
While many of these companies look expensive at the moment, some are still trading at quite low multiples. Helen of Troy (NASDAQ: HELE) recently came out with a quarterly beat, and is trading at a steep discount to the industry. As such, the stock looks like an enticing choice in its industry.
Introducing Helen of Troy
Helen of Troy designs and distributes a range of brand-name consumer products, and has three segments: Personal Care, Housewares and Healthcare/Home Environment. The company's offerings include products such as appliances, brushes, combs, accessories, and water filtration products. The stock has a fairly modest market cap of $1.34 billion and a surprisingly high 1.54 beta. Up over 40% in the last year, the stock has beaten the S&P 500.
Earnings history and Q1 beat
Earnings growth has been fairly impressive over the last few years, with annual Earnings Per Share (EPS) more than doubling from $1.75 in 2008 to $3.62 in fiscal 2013. Since 2010, EPS growth has easily outpaced industry peers, and annual EPS has beaten the consensus estimate every year since 2008. The company’s First Quarter (Q1) Fiscal Year (FY_ 2014 report was quite positive, with EPS of $0.82 easily beating the $0.71 consensus.
According to management, the report was a solid start to the year. Adjusted operating income rose 4.9%, and diluted EPS increased by nearly 11%. Sales growth was especially strong in the Housewares segment, with sales up 5.4%. This growth was driven mainly by strength in the company's new OXO cleaning utility line.
The Healthcare/Home Environment segment didn’t do too badly either with a 2.6% increase in sales, water filtration products performing well. Personal Care sales declined 1.8%, as a result of weakness in grooming, skin care and hair care products, which are facing a tough retail environment. Looking forward, the company expects 2014 results largely in line with analyst expectations.
Lifetime Brands (NASDAQ: LCUT) competes with Helen of Troy in the Housewares segment, but hasn’t been able to grow earnings as well in recent times. The company's main business is branded kitchenware, which it distributes to retailers and consumers. Annual EPS has hovered between $1.24 and $1.33 since 2010, and doesn’t really seem to be increasing. The company kicked off fiscal 2013 with a fairly disastrous miss, delivering a loss of $0.05 versus a consensus estimate of a $0.12 profit.
Clorox (NYSE: CLX), another competitor, has also been seeing fairly static EPS growth over the last few years. The firm is best known for its bleach and cleaning products, but also produces things such as kitty litter and natural personal care products. Growth has stagnated after hitting a peak of $4.24 in 2010, dipping to $4.10 in 2012. While analysts are expecting a bit of an improvement in fiscal 2013, the 3-5 year expected growth rate of around 3% isn’t particularly encouraging, and certainly lower than Helen of Troy’s 24.4%. Additionally, the stock looks fairly expensive at the moment.
Valuations and metrics
Helen of Troy stock looks to offer fairly good value for money right now, trading at only 11.60 times trailing earnings versus Clorox’ 20.02. Lifetime Brands is even cheaper at 9.39, but as noted it isn’t growing earnings very well. The Price/Earnings to Growth (PEG) ratio of 0.79 is very low, as is the price-to-sales at 1.04. Clorox' PEG ratio is very high at 2.81, while Lifetime has a PEG ratio of 1.06. The operating margin of around 12% is fairly good compared to the industry, sitting between Lifetime's 5% and Clorox' 17%, and the return on equity of 13.42% is decent. Based on these metrics, the stock looks slightly undervalued at the moment.
The bottom line
For those investors looking to get defensive with a company that produces essential goods, I think Helen of Troy is worth considering. The company is growing earnings steadily, and the stock has been performing very well recently. Moreover, it is trading at quite a low valuation compared to the industry and the broader market, which means the stock may have more room to rise.
Daniel James has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!