Helen of Troy: Attractive Stock

Jul. 7.08 | About: Helen of (HELE)

Helen of Troy (NASDAQ:HELE) is a designer, producer and global marketer of a wide range of brand-name personal care and household consumer products.

The company's personal care products include hair dryers, curling irons, hair setters, women's shavers, brushes, combs, hair accessories, home hair clippers, mirrors, foot baths, body massagers, paraffin baths, liquid hair styling products, body powder and skin care products.

The company's household products include kitchen tools, cutlery, bar and wine accessories, household cleaning tools, tea kettles, trash cans, storage and organization products, gardening tools, kitchen mitts and trivets, barbeque tools, and rechargeable lighting products.

The Company's products are sold under licensed trade marks including Vidal Sassoon, Revlon, Dr. Scholl's, Sunbeam, Sea Breeze, and Vitapointe. Helen of Troy's owned brands include OXO, Good Grips, Candela, Brut, Vitalis, Final Net, Ammens, Condition 3-in-1, SkinMilk, Dazey, Caruso, Karina, DCNL, Nandi, and Isobel. The company markets hair and beauty care products under the Helen of Troy, Hot Tools, Hot Spa, Salon Edition, Gallery Series, Wigo, Fusion Tools, Belson, Belson Pro, Gold 'N Hot, Curlmaster, Profiles, Comare, Mega Hot, and Shear Technology owned brands to the professional beauty salon industry.

Market cap: $500 million; Enterprise Value: $650 million

Next earnings date: Tuesday morning, July 8.

The company is estimated to earn $1.78 per share this year (FY ending Feb ’09) and $2.08 next year. The company earned $1.75 last year, so the earnings estimate for this year looks conservative, although the estimate for next year may prove to be aggressive. At around $16, the stock is trading at just 9x ’08 EPS. What is more remarkable is that the company’s cash flow has been excellent, and it is trading at 5x trailing free cash flow! The company is using its free cash flow to repay debt, make small acquisitions and buy back stock.

The stock has been flat over the last few months, as concern over a consumer slowdown has built. However, most of the company’s products are consumables with powerful brand names, and in my opinion, should be able to hold their own in a recessionary environment. The company does face some input cost pressures, but should be able to offset any decrease in operating margin through its productive use of cash generated (lower interest expense by repaying debt and a lower share count by buying back shares).

Fair value for HELE stock: $27 (15x multiple on ‘08 EPS of $1.78).

Disclosure: Author has a long position in HELE