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Summary

  • HAIN performed well overall in 2013, but performance has been somewhat sluggish thus far in 2014.
  • From a relative valuation perspective, HAIN appears undervalued in comparison to two of its competitors, BNNY and WWAV.
  • With regards to technical indicators, HAIN recently charted a "golden cross".

Introduction

The Hain Celestial Group (NASDAQ:HAIN), a manufacturer and seller of organic and natural grocery, snack, tea, and personal care products, posted extraordinary performance numbers in 2013, increasing 67.4% on the year compared to the S&P500's gain of 29.6%, but has slowed down along with the broader markets in 2014, increasing 3.1% year-to-date as of March 14th, during which time the S&P500 decreased by 0.4%.

2014 thus far has also been quite volatile for HAIN. The stock started the year on an upswing, closing at an all-time record of $97.81 per share on January 15th before dropping down to a year-to-date low of $84.48 per share on February 13th after which it came back to close out the first half of March at $93.57 per share on March 14th.

Fundamentals

With regards to the company's balance sheet, measures of liquidity have been improving over the course of the past few quarters.

Quarter Ending 6/30/13

Quarter Ending 9/30/13

Quarter Ending 12/31/13

Current Ratio

2.10

2.11

2.41

Quick Ratio

1.00

1.01

1.21

Cash Ratio

0.15

0.22

0.26

Before looking at HAIN's income statement, it should be noted that according to the company's most recent 10K, quarterly fluctuations in its operating results occur due to seasonality. Thus, from an analytical perspective, when making comparisons between different time periods in the company's income statements, it is more logical to analyze trailing four quarters data or quarterly data on a year-over-year basis, as opposed to quarterly data on a quarter-over-quarter basis. Interestingly, one of the reasons cited for such seasonality is that hot tea and soup products tend to experience increased demand in the cooler months of the year. Based on the below data for January and February from the National Climatic Data Center, this was an especially cold winter for the U.S., so perhaps this will be a positive factor for the company's results in the quarter that will conclude on March 31st. (Looking forward, the monthly temperature data for the full month of March will be interesting to take note of.)

Region

January Anomaly (from 1901-2000 average)

February Anomaly (from 1901-2000 average)

January 1901-2001 Average

February 1901-2001 Average

Ohio Valley

-6.1

-5.7

29.7

32.9

West

7.6

4.1

37.5

40.7

Northern Rockies and Plains

4.9

-5.3

16.1

20.8

Southwest

4.0

3.6

31.5

35.6

Southeast

-5.4

1.3

45.4

47.6

South

-1.8

-2.7

41.6

45.7

Northwest

5.9

-0.1

27.0

31.3

Northeast

-2.6

-1.3

21.3

22.5

Upper Midwest

-4.8

-8.1

12.9

17.0

Contiguous 48 States

0.42

-1.64

30.12

33.82

Regarding the income statement, from the company's latest 10K, we can see that for the full year ended June 30th, the net profit margin increased from 4.96% in 2011, to 5.75% in 2012, and to 6.61% in 2013. However, the operating margin did not consistently improve for those respective time periods, going from 10.03%, to 10.99%, and then to 10.05%. Part of the improvement in net profit margin was due to a lower provision for income taxes as a percentage of net income, which decreased from 3.41% to 2.99% and then to 1.98%, for the full years ended June 30th, 2011, 2012, and 2013, respectively.

Year Ended June 30th 2013

Year Ended June 30th 2012

Year Ended June 30th 2011

Gross profit

27.37%

27.75%

28.85%

Operating income

10.05%

10.99%

10.03%

Net income

6.61%

5.75%

4.96%

From the most recent quarterly report, we find that in the six months ended December 31st, the net profit margin increased from 5.89% for 2012 to 6.80% for 2013. The operating margins in this case are also nearly constant, increasing from 10.25% to 10.28% for those respective time periods.

6 Months Ended Dec. 31st 2013

6 Months Ended Dec. 31st 2012

Gross profit

25.90%

27.72%

Operating income

10.28%

10.25%

Net income

6.80%

5.89%

Relative Valuation

The relative valuation approach herein uses three price multiples and one enterprise multiple analyzed via the method of comparables. Two companies were chosen to be compared with HAIN: Annie's, Inc. (NYSE:BNNY) and The WhiteWave Foods Company (NYSE:WWAV). These two companies were chosen based on their comparatively small market capitalization (HAIN and WWAV both have a market capitalization of roughly 5 billion, while BNNY's is less than 1 billion) and dividend policy (all three do not pay a dividend) from a longer list of competitors in HAIN's 10K. The price multiples analyzed are: price-to-earnings (P/E), adjusted price-to-book (P/B) (book value has been adjusted by subtracting goodwill), price-to-sales (P/S), and enterprise value-to-earnings before interest taxes depreciation and amortization (EV/EBITDA). (Prices are as of March 18th, 2014. All multiples were calculated on a ttm basis, except adjusted P/B, which was calculated on an mrq basis)

Company

P/E

P/B (adjusted)

P/S

EV/EBITDA

Hain Celestial

33.98

10.79

2.40

21.49

Annie's

47.65

14.26

3.54

26.60

WhiteWave Foods Company

51.95

27.33

2.06

23.51

In all the categories charted above, HAIN is relatively undervalued in comparison to BNNY. It is possible that this is because BNNY is smaller than HAIN by market capitalization and investors are expecting faster growth. Yet, the profit margin for HAIN's most recent 10K (recording results for the year ended June 30th, 2013) showed a profit margin of 6.61%, while the profit margin on BNNY's most recent 10K (recording results for the year ended March, 31st, 2013), revealed a profit margin that was only slightly higher at 6.80%.

Looking at the comparison to WWAV, the P/E, P/B, and EV/EBITDA figures show that HAIN is relatively undervalued. On top of this, a further argument could be made in support of HAIN by comparing the above mentioned profit margin of HAIN in the full year ended June 30th, 2013 (6.61%) with the full year ended December 31st, 2013 profit margin of WWAV (3.95% unadjusted, 4.92% adjusted by adding back disposal and exit costs that in my opinion are potentially non-recurring.) However, the P/S figure indicates that HAIN is overvalued in a relative sense compared to WWAV. Overall though, even if the results are slightly mixed, from the above analysis alone it appears there is more evidence to support that HAIN is the most undervalued of this group.

Technical Indicators

Lastly, in order to try and further understand the situation, some technical indicators will be concisely presented. (Simple moving average, RSI, and MFI)

HAIN's 20 day moving average dropped below its 50 day moving average in mid-February, but on March 18th closed back slightly above its 50 day moving average. The 20 day moving average crossing above its 50 day moving average is sometimes referred to as a 'golden cross', and can be interpreted by some as a bullish signal, albeit not an infallible one. With regards to RSI and MFI, there appears to be nothing indicated that would raise concerns about overbought or oversold conditions.

Regarding WWAV, there appears to be little of interest to report with regards to moving averages, MFI, or RSI.

This of course is not an exhaustive review of technical indicators, which remains beyond the scope of this article, so if readers have noticed anything themselves regarding technicals for HAIN or WWAV, please feel free to note it in the comment section.

Conclusion

Overall, given the above factors derived from balance sheet ratio analysis and relative valuation analysis, plus the potentially bullish technical signal, (and the cold winter weather), HAIN emerges from this analysis looking relatively strong in comparison to two of its competitors. In closing, a caveat that should be raised about this conclusion is that it relies on valuation that is relative in nature; this analysis has not ventured to establish an intrinsic value for HAIN.

Source: Relative Valuation Analysis Of Hain Celestial