Two Condom Stocks for Health and Profit
Michael is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
A growing awareness of the health benefits of using condoms during sex is driving the sales of female and male condoms worldwide, creating profits for companies in North America and Europe.
The vast majority of condom sales are traditional latex condoms for men. In recent years, however, women have sought ways to protect themselves against sexually-transmitted diseases and unwanted pregnancy. To that end, many are now using female condoms.
Condoms fall into the Consumer Non-Cyclical Sector, which is a phenomenal space for consistent sales, even during recessions. Like peanut butter, condoms sell in both good and bad economic times.
The FC2 female condom
Shares of The Female Health Company (NASDAQ: FHCO) is up 271% over the past five years, and is up 36% year-to-date through June 28. Despite this, the company has plenty of room to grow, as it the only company that manufactures the FC2 female condom.
The FC2 female condom is the only Food and Drug Administration-approved product that is available which is controlled by a woman and offers dual protection against sexually transmitted disease (including HIV/AIDS) and unintended pregnancy. Female Health, based in Chicago, also owns certain worldwide rights to the FC2 female condom, including patents in other countries.
With a market cap of $281 million, Female Health is tiny in comparison to other condom makers. It has solid financials, however, with $6 million in cash and no debt. The company also pays a 2.8% dividend.
In its second quarter of 2013, Female Health reported $0.12 cents earnings per share, up 71% from $.07 cents in same quarter 2012. The company beat the consensus estimates of $0.08 per share by $0.04 in its latest quarterly report.
Worldwide health organizations and charities such as the Bill and Melinda Gates Foundation have donated funds for the purchase of FC2 female condoms for delivery to countries in Africa as a means to stop the spread of HIV/AIDS.
The male condom
In the male condom space, Church & Dwight (NYSE: CHD), a New Jersey company that manufactures and markets Trojan condoms, has seen its stock climb 118% in the past five years and was up 15% year-to-date through June 28. The company derives significant revenue from the sale of condoms globally, but also sells many other household products such as Arm & Hammer baking soda. Church & Dwight pays a 1.9% dividend, has $279 million in cash and holds $853 million in debt. In first quarter of 2013, the company earned $0.76 per share, up 15% from $0.66 per share in the first quarter of 2012.
Church & Dwight’s Trojan dominates the US market, but Reckitt Benckiser Group (LSE: RB) of Slough, UK, is trying to capture a larger share of the US condom market with its Durex brand. Durex lined up celebrities Jenny McCarthy and Joanna Krupa for a Durex condom bash in New York earlier this year, and has developed smart print ads to promote its Durex condoms. Durex is the dominant brand in the United Kingdom, but it only has 15% of the US condom market, compared with Trojan's 69%. It's unlikely Durex will take over as the dominant brand in the United States, but it may gain some market share. Reckitt Benckiser is a large diversified company selling other nondurable household products as well, including the popular disinfectant cleaner Lysol.
Other reasons to like Church and Dwight and Female Health are their high profit margins. Church & Dwight has an operating profit margin of 19% and a net profit of 12%. The margins at Female Health Company are even better, with an operating profit margin of 34.12% and a net profit margin of 46.79%. Reckitt Benckiser's operating margin was 25.34%.
A risk facing Female Health lies in competitors trying to come up with other female condoms. Female Health is partly dependent on world health organizations buying its products to deliver them free to women in Third World countries. As education and awareness grow over time, however, more women will buy these products under their own volition to protect themselves against disease and unwanted pregnancy.
The Foolish bottom line
Worldwide condom sales are forecast to reach $5.4 billion by 2018. Both Female Health and Church & Dwight are poised to grow their businesses in this time as more people decide to protect themselves against disease and unintended pregnancy while still enjoying sex. Both stocks offer long-term appreciation and dividends as well.
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Michael Hooper owns shares of Church & Dwight Co.. The Motley Fool recommends Reckitt Benckiser Group. 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!