It’s hard to find organic growth in consumer products, but I believe Newell Brands Inc. (NWL, Financial) might just find a way to do it. Newell is a manufacturer of many popular and iconic consumer brands such as Rubbermaid, FoodSaver, Calphalon, Sistema, Sharpie, Paper Mate, Dymo, EXPO, Elmer’s, Yankee Candle, Sunbeam and Mr. Coffee
The company has a long operating history dating back to 1903, but the current entity was largely formed by a mega-merger with Rubbermaid and Graco in 1999. It had a rocky start after that transaction, and years later. later, Businessweek called it a “merger”. from hell” as Newell shareholders lost 50% of their value and the company had to write off $500 million in goodwill value in 2002.
Since those tumultuous post-merger days and thanks to high volatility over the years, the stock has grown to a market capitalization of $8.3 billion and generates more than $10 billion in annual revenue.
About the company
Newell operates in five segments: Business Solutions, Appliances, Home Solutions, Learning & Development, and Outdoors & Recreation.
The Commercial Solutions Division provides commercial cleaning and janitorial solutions, closet and garage organization products, sanitation systems, home security products, and smoke and carbon monoxide alarms. Brands include First Alert, Mapa, Quickie, Rubbermaid and Spontex.
The Household Appliances segment provides small kitchen appliances under the Crock-Pot, Mr. Coffee, Oster and Sunbeam brands.
The Home Solutions Division offers food and home storage, fresh produce preservation, vacuum sealing, gourmet cookware, bakeware, flatware and flavoring products. vibe. Brands include Ball, Calphalon, Chesapeake Bay Candle, FoodSaver, Rubbermaid, Sistema, WoodWick and Yankee Candle.
The learning and development segment offers writing instruments such as markers, highlighters, pens and pencils as well as art products, adhesive and cutting products and labeling solutions. The division also houses baby items and childcare products. Brands include Aprica, Baby Jogger, Graco, NUK, Tigex, Dymo, Elmer’s, EXPO, Graco, Mr. Sketch, NUK, Paper Mate, Parker, Prismacolor, Sharpie, Waterman and X-Acto.
The Outdoors and Leisure segment provides camping and outdoor products under the Campingaz, Coleman, Contigo, ExOfficio and Marmot brands.
Newell reported strong results in the first quarter of 2022 with sales up 4.4% and base sales up 6.9%. Core sales is the organic growth term for the company. Gross margin was 31.0% versus 31.9% for the prior year period as the company saw significant headwinds related to inflation, particularly related to resin, OEM finished goods , transportation and labor.
The company has always been in debt at times as it has used debt to finance its acquisitions. Currently, the leverage ratio is down to 3.1 due to high free cash flow and divestments. Free cash flow over the past three years was $779 million for 2019, $1.17 billion for 2020 and $595 million for 2021.
The company provided guidance for calendar year 2022, which included organic sales growth of between 0.0% and 2.0% and earnings per share of between $1.85 and $1.93. Most Wall Street analysts are at the high end of that range, with consensus EPS estimates around $1.91. If the company achieves this, its price is remarkably cheap at only 10 times forward earnings. The current ratio of enterprise value to Ebitda based on estimated 2022 Ebitda is approximately 7.
To arrive at an estimate of the fair value of this stock, I used the GuruFoucs DCF calculator, taking as a starting point the consensus 2022 EPS estimate of $1.91 and projecting long-term growth of 6 .0%. This results in a fair value estimate of approximately $28.00.
Newell’s dividend yield is currently 4.70%, which is significantly above market averages. The payout ratio is below 50% and the company generates enough free cash flow to support the dividend.
Gurus who recently bought Newell shares include
Richard Pzena (Businesses, Portfolio) and
Jim Simons (Jobs, Portfolio). Gurus who have sold or reduced their positions include
Carl Icahn (Businesses, Portfolio) and
Joel Greenblatt (Jobs, Portfolio).
It looks like Newell is very undervalued right now, based on my estimates. It’s not a high-growth stock by any means, and its historical volatility isn’t a selling point either, but with mid- to high-single digit cash flow and operating profit growth, I thinks the company should be able to create above-average shareholder returns, especially given the high dividend yield.