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Let me first start this article by pointing out the critical change in consumer sentiment I’ve noticed over approximately the last five years. I remember a time when specialty shops with organic, healthy, natural and locally grown foods were far and few between. The fact is that these kinds of foods are a relatively new trend. Fast forward to today (from around 2005) and I feel like I can’t cross a street without finding one of these shops or a place like Whole Foods Market (NASDAQ:WFM). Since I like to focus on obvious and unarguably clear trends (see my article here on another clearly obvious trend) I figured this would be a good chance for investment.

I would like to point out the company that stands to benefit the most from this trend. Hain Celestial (NASDAQ:HAIN) manufactures and provides organic health products and “better for you” products. HAIN has an enormous number of product lines in the Whole Foods Markets and The Fresh Market (NASDAQ:TFM), both of which are spread across the United States. Don’t think for a second that HAIN is naïve and doesn’t realize the global opportunities for its product lines. HAIN considers global acquisitions as an integral part of its business strategy. In the latest HAIN 10-Q filing they state, “We believe that by integrating our various brands, we will continue to achieve economies of scale and enhanced market penetration.” HAIN has an investment in a joint venture in Hong Kong with Hutchison China Meditech (OTC:HNCMF), which is a majority owned subsidiary of Hutchison Whampoa Limited (OTCPK:HUWHF). This joint venture markets and distributes co-branded infant and toddler feeding products as well as selected HAIN brands in Hong Kong, China and other Asian markets. HAIN recently acquired Danival SAS; a manufacturer of certified organic food products based in France. This product line includes over 200 branded organic sweet and salted fruits, vegetables and delicatessens distributed across Europe. This acquisition also complements the organic food line of the “Lima” brand HAIN currently has in Europe. HAIN also acquired GG UniqueFiber AS (herein referred to as GG) in January 2011. GG is a manufacturer of all natural high fiber crackers and is based in Norway. These products are distributed in the United States, the United Kingdom and continental Europe. HAIN manufactures internationally and their products are sold in more than 50 countries.

The most recent quarter has generated HAIN a majority of its sales from the United States leaving both Europe and Canada as it’s developing segments. As you can see from a year ago, based on the first quarter of each year, the Canadian market has grown by 16.92%, the United States market by 32.17%, and the European market by 23.44%.

Three Months Ended March 31

2010

2011

U. States

$174,502.00

$230,647.00

Canada

$15,566.00

$18,200.00

Europe

$32,030.00

$39,539.00

Sales are in Thousands

An essential piece to the growth and distribution of the HAIN product line, both domestically and internationally, is the expansion of Whole Foods Market. Goldman Sachs has recently upgraded WFM to a buy (here) and for good reason. WFM has experienced 7% same store sales growth according to their 2010 10-K. As WFM experiences increased sales it is likely these customers are purchasing HAIN products as well.

Next I would like to point out the excellent expansion and growth in WFM stores. In 2006 WFM had 175 stores. At the end of their 2010 fiscal year for WFM they had 284 stores. Over those 5 years WFM has grown its store count by 62%, or 12.5% per year. Recently WFM has been expanding internationally as well with a few stores in Canada and almost a dozen stores in the United Kingdom. All of these stores carry HAIN products. WFM has shown no sign of slowing down in its aggressive growth strategy. WFM explains their growth strategy in their latest 10-K stating, “Our growth strategy is to expand primarily through new store openings. We have a disciplined, opportunistic real estate strategy, opening stores in existing trade areas as well as new areas, including international locations.”

Now let’s make a couple of assumptions for WFM store growth to get a better picture of the opportunity it provides to HAIN. This first table shows data from the most recent WFM 10-K report.

WFM Store Growth

Year

2006

2007

2008

2009

2010

Stores

175

186

276

275

284

This next table shows a few store growth rates with their corresponding total open stores.

Year

2011

2012

2013

Total Open Stores

Low yearly growth estimate

8.5%

308

334

363

Current Average Yearly Growth

12.5%

320

359

404

High yearly growth estimate

16.5%

331

385

449

This shows us that even with a 4% decrease in store growth, down to 8.5%, by the fiscal year 2013, WFM will have approximately 363 stores. That’s 79 more stores than the end of fiscal 2010. That’s 79 more stores you will find HAIN products in. I think it is completely reasonable to assume accelerating revenue growth for HAIN.

In the last year, HAIN has traded at a P/E ratio anywhere from 29 to above 40. At the current P/E ratio of about 30, in a historical sense, it is trading relatively cheap to where it has traded before. All in all, I believe the long term trend for HAIN is in place and this company is in an excellent position. HAIN has a strong foothold in the United States and two growing markets overseas. As the mind of consumers change (and people become more health conscious) this company will continue to grow. Presented below are a couple of relevant tables with some useful estimates and information. I recommend buying and holding this stock for the long haul.

Estimated 2011 Revenues ($M)

2010 Revenues = $917.14

Low End Revenue Growth Rate

15%

1054.941

Revenue Growth for 9mon ended Mar2010 - Mar2011

20.69%

1107.14

Revenue Growth Rate, Mar2010 - Mar 2011

29.85%

1191.17

High End Revenue Growth Rate

35%

1238.41

Est. Cost of Revenue and Gross Profit 2011 ($M)

Revenue Est. ranged from lowest to highest

Growth Rate

15%

20.69%

29.85%

35%

Revenues

1054.94

1107.14

1191.17

1238.41

Cost of Revenue

High Estimate

81%

854.50

896.78

964.85

1003.11

Average Cost of Revenue 2007-2010

74%

780.66

819.28

881.47

916.42

Low Estimate

67%

706.81

741.78

798.08

829.73

Gross Profit at each Cost of Revenue estimate.

81%

200.44

210.36

226.32

235.30

74%

274.28

287.86

309.70

321.99

67%

348.13

365.36

393.09

408.68

Disclosure: I am long HAIN, WFM.

Source: Organically Grow Your Portfolio With Hain Celestial and Whole Foods Market