Look at Berkshire’s investments in insurance companies, financial institutions, and retailers. Buffett loves companies that operate in boring industries that have a consistent revenue stream. He also likes to buy companies that have a business model that is easy to understand. I think I have found one such company.
Newell Rubbermaid (NYSE:NWL) is known for creating food storage containers, cookware products, and home products. The company is famous for its Rubbermaid brand of products. So, why not just invest in Tupperware? It’s because Newell Rubbermaid is more than just storage products.
The company also derives revenue from its Sharpie, PaperMate, Parker, Waterman writing utensils. Newell owns the following businesses as well.
- Calaphon gourmet cookware
- Goody beauty and personal grooming products
- Graco children’s products
- Irwin and Lenox construction tools and accessories
- Kirsch blinds and shades
- Dymo home and business labeling solutions
- BenzOrmatic torches and patio heaters
Shares of Newell Rubbermaid currently trade for $16 a share. The company trades at just over 10 times earnings. The company had consistent revenue growth until 2009 when revenue dipped to $5.5 billion dollars due to the recession. Revenue is on pace to come in at $5.7 billion dollars for the current year which would represent 3% sales growth.
Things are looking up for Newell. The company beat second quarter estimates and is seeing increased demand for its products. Newell has been able to increase operating margins by raising prices. Earnings are up 23% year over year and operating margins are up to 12.4%.
The weakness at Newell is the balance sheet. The company has over $250 million in cash and $2.5 billion dollars in long term debt. Newell generates nearly $700 million dollars in free cash flow. Newell’s shares still look cheap even though the stock is currently yielding just 1.2%.
The company is making a number of smart strategic moves. Management has plans to buy back $500 million dollars in shares. This is a pretty significant buyback for a company with a $4.4 billion dollar market cap. Newell is taking advantage of the low interest rate environment and restructuring its debt. The company is lowering its interest expense by buying back its 10.6% high interest debt.
Newell is an attractive takeover candidate for a larger industry player. The company has a great product line with high single digit growth potential over the next few years.