Seeking Alpha: Helen Of Troy Not Looking Like A Cheap Date Today

I've written on Helen Of Troy (HELE) plenty of times over the years, and it has long been a great stock for writers and stock pickers because it's quite a bit more volatile than you might expect from a maker of deodorant, hair dryers, and vegetable peelers. At the same time, it's well worth noting that the company has a pretty good record of delivering high single-digit returns on capital and acquiring under-developed brands/businesses that thrive with a little more direct attention.

Right now, the company is having a little trouble finding attractive deal candidates, while investments in a new distribution center compresses free cash flow. I don't think these shares are much of a bargain today, but I'd certainly keep this one on the watch list.

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Helen Of Troy Not Looking Like A Cheap Date Today

Investopedia: Given Procter & Gamble's Performance, Should The Weak Volumes Matter More?

Investors seem to love gaudy expense-reduction programs, and Procter & Gamble (NYSE:PG) shares have certainly done better since Bill Ackman's Pershing Square got involved and management announced a $10 billion cost-cutting program. P&G's performance isn't so unusual in the wider context of a hot market for consumer staple stocks, but it's looking more and more like investors are overpaying for the margin improvement potential and earnings consistency of these names. Barring a quick turnaround in volumes, it looks like P&G shares have overshot the mark and offer less compelling potential from today's level.

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Investopedia: Helen Of Troy Needs To Exploit Distracted Competitors

Acquisitions can obviously expand a company's operations, but even growth-by-acquisition stories ultimately come down to a company's ability to execute. Helen Of Troy (Nasdaq:HELE) has always been a willing (and aggressive) acquirer, and that has allowed management to build the company into a diversified collection of well-known home and personal care brands. The question now, however, is whether this company can take advantage of the rampant restructurings among its larger rivals to widen its niche and gain market share.

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Seeking Alpha: Procter & Gamble's Problems Go Beyond Costs

Despite the shared obsession between corporate executives and Wall Street over cost-cutting, costs are not necessarily Procter & Gamble's (PG) biggest problem today. Instead, the company may be paying the price for getting too aggressive on price and too lackadaisical on product innovation. With rivals like Unilever (UL) and Colgate (CL) showing more in-store momentum, P&G investors may want to prepare themselves for a few more quarters of unimpressive earnings reports.

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Procter & Gamble's Problems Go Beyond Costs

Investopedia: Icahn Puts Clorox In The Spin Cycle

Love him or hate him, Carl Icahn makes the world a more interesting place. Who else but Icahn would launch a multi-billion dollar bid for a company he likes while hoping that the bid ultimately fails? And yet, that is what is happening now with Clorox (NYSE:CLX), as Icahn apparently hopes to stimulate a superior bid from a larger consumer goods company. 


The Deal That May Be
Icahn (through Icahn Enterprises) has stepped up with a bid of $76.50 per share for the rest of Clorox (Icahn owns a little more than 9% of Clorox shares). That is a 12% premium to a stock that has been a pretty notable laggard versus the S&P 500 over the past two years (though an outperformer on the five year comparison).

If Clorox were to take this $10.2 billion deal, it would be at a valuation of about 10.6x trailing EBTIDA and less than two times forward sales - valuations that would still be below comparables like Procter & Gamble (NYSE:PG) and Colgate Palmolive (NYSE:CL). 



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Another Great Deal For Helen Of Troy

I have followed and written about consumer products company Helen of Troy (Nasdaq:HELE) for a long time, and yet I still find myself surprised at how the company operates. Simply put, this company just has a knack for finding attractive deals and pulling the trigger - common sense would dictate that other would-be rivals would look around and see the same business conditions and compete against these accretive opportunities for Helen of Troy. 

The Latest
Helen of Troy's stock spiked on Thursday on the company's announcement that it would be buying consumer products company Kaz for $260 million - a purchase that the company will fund largely out of debt. A privately-held company, Kaz sells a wide range of products in the personal care and houseware space, including air purifiers, fans, thermometers and humidifiers. Although the company has some of its own brands, a lot of Kaz's sales come from licensed brands like Vicks and Braun [both from Procter & Gamble (NYSE:PG)] and Honeywell (NYSE:HON). That is almost a perfect match for how HELE operates, and the two companies should fit together exceptionally well.

Solid Financial Reasons For The Deal
According to HELE, Kaz is on track to produce about $400 million in sales. That suggests an exceptionally good valuation on the deal, though on a price-sales basis, it is not much different than the valuations on companies like Newell Rubbermaid (NYSE:NWL), Jarden (NYSE:JAH) or Lifetime Brands (Nasdaq:LCUT). What is interesting about that comparison, though, is that all of those companies also have rather low returns on capital. That raises the question of just how well-run Kaz is and if HELE is buying a problem. (For related reading, check out How To Use Price-To-Sales Ratios To Value Stocks.)

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Helen Of Troy Has A Few Pimples

Helen of Troy (Nasdaq:HELE) is one of those surprisingly volatile stocks that seems much more turbulent than the underlying business would suggest. After all, how much year-to-year volatility should there be in curling irons and cookware? Nevertheless, this is a stock that has given investors numerous trading opportunities over the years. 

The Quarter That Was
The company's fiscal second quarter saw revenue growth of 8%, as the company's houseware business (fueled by the popular OXO brand) grew 10%. In comparison, the personal care business (which is about twice as large) had growth of 7%. Overall, that was a minor miss (about 5%), relative to Wall Street expectations.

Although the top line performance was a bit lacking, the company more than made up for it in expense leverage. Gross margins jumped more than 300 basis points, and adjusted operating income was up 34% from last year. That in turn meant a better than 300 basis point improvement in operating margins, and margins are once again on the higher end of the company's long-term historical range. 


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Unilever's Yo-Yo Diet

It does not seem like it was all that long ago that Anglo-Dutch consumer products giant Unilever (NYSE:UL) (NYSE:UN) was slimming down, centralizing and cutting its product portfolio. Nevertheless, Unilever has decided that it is time to get a little bigger again, and the company is buying Alberto-Culver (NYSE:ACV), a hair and skin care specialist, in an all-cash deal. 

The Terms 
Unilever is proposing to pay $3.7 billion in cash, or $37.50 per share. That is a rather healthy premium for Alberto-Culver. Even granting that the spin-off of Sally Beauty Holding (NYSE:SBH) makes past cash flow performance less predictive, investors have to make some rather exceptional profitability improvement assumptions to make Unilever's price seem sound. On the other hand, this deal will meaningfully expand Unilever's market share and there are solid reasons to think that Unilever's marketing machine will do more to grow Alberto-Culver's brands and international exposure than the company did on its own. 


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