* All data are as of the close of Friday, December 5, 2014. Emphasis is on company fundamentals and financial data rather than commentary.
The Houseware & Accessories industry is composed of a mix of consumer staples companies, such as the largest company in the industry Clorox (NYSE:CLX), and of consumer discretionaries, including the second and third largest companies in the space, Newell Rubbermaid (NYSE:NWL) and Jarden (NYSE:JAH).
Investors considering these companies should note the diversity within their product lines, which causes them to perform notably differently despite belonging to the same industry.
• The Clorox Company, headquartered in Oakland, California, manufactures and markets consumer and professional products, including bleach and stain removers, cleaning products for floors, kitchens and bathrooms, trash bags, cat litter and cooking charcoal. Other product lines include sauces and salad dressings, as well as water filtration systems.
• Newell Rubbermaid Inc., headquartered in Atlanta, Georgia, manufactures a broad range of products including stationary items such as writing instruments, markers, pens and pencils, as well as office equipment for labeling and postage. It also markets bake-ware, cutlery and other kitchen utensils, as well as personal care items including hair-care products. Additionally, it offers hand and power tools, as well as industrial saws and tools, along with strollers, highchairs, car seats, and other products for infants.
• Jarden Corp., headquartered in Boca Raton, Florida, offers household kitchen appliances such as blenders, coffeemakers, irons, mixers, slow cookers, kettles, toasters and others, in addition to home environmental products such as air filters, fans, heaters and humidifiers. Its personal care products include fragrances, hair clippers and trimmers. It also markets outdoor products including sporting equipment such as skis, snowboards, and fishing equipment, as well as outdoor apparel.
The three companies' varied performance during the economic recovery is quite understandable given the nature of each one's products, with discretionary-leaning Rubbermaid and Jarden soaring, while the staple products-laden Clorox has not even kept pace with its consumer staples sector, as graphed below.
Since the recovery began in early 2009, where the broader market S&P 500 index [black] has gained some 205% and the SPDR Consumer Staples ETF (NYSEARCA:XLP) [blue] has gained 150%, Clorox [beige] has gained a mere 120%, while Rubbermaid [purple] and Jarden [orange] have soared 700% and 930% respectively.
On an annualized basis, where the S&P has averaged 36.18% and XLP has averaged 26.47%, Clorox has averaged 21.18%, Rubbermaid has averaged 123.53%, while Jarden has averaged a stunning 164.12% per year!
Looking forward, the Houseware & Accessories industry as a whole looks a little volatile near term before vastly outgrowing the broader market longer term, as tabled below where green indicates outperformance while yellow denotes underperformance.
Over the next quarter, the industry's earnings are expected to grow at some 1.11 times the S&P's average growth rate, before underperforming significantly next quarter.
Yet come 2015, the industry's earnings are set to grow at some 5.72 times the broader market's growth rate, before slowing to a more sustainable but still robust 1.38 times annually over the next five years.
Zooming-in a little closer, the three largest companies in the industry are all expected to split perform much along the lines of their past performance, as tabled below.
While Clorox's earnings are expected to under-grow the broader market's average growth rate, Jarden's growth is expected to outgrow all over both the nearer and longer terms. Meanwhile, Rubbermaid is seen underperforming near term before improving to market-performing longer term.
Yet there is more than earnings growth to consider when sizing up a company as a potential investment. How do the three compare against one another in other metrics, and which makes the best investment?
Let's answer that by comparing their company fundamentals using the following format: a) financial comparisons, b) estimates and analyst recommendations, and c) rankings with accompanying data table. As we compare each metric, the best performing company will be shaded green while the worst performing will be shaded yellow, which will later be tallied for the final ranking.
A) Financial Comparisons
• Market Capitalization: While company size does not necessarily imply an advantage and is thus not ranked, it is important as a denominator against which other financial data will be compared for ranking.
• Growth: Since revenues and expenses can vary greatly from one season to another, growth is measured on a year-over-year quarterly basis, where Q1 of this year is compared to Q1 of the previous year, for example.
In the most recently reported quarter, Jarden generated the greatest revenue and earnings growth year-over-year, while Clorox and Rubbermaid split the slowest growth between them, with both Clorox and Rubbermaid reporting earnings shrinkage.
• Profitability: A company's margins are important in determining how much profit the company generates from its sales. Operating margin indicates the percentage earned after operating costs, such as labor, materials, and overhead. Profit margin indicates the profit left over after operating costs plus all other costs, including debt, interest, taxes and depreciation.
Of our three contestants, Clorox operated with the widest profit and operating margins, while Jarden contended with the narrowest.
• Management Effectiveness: Shareholders are keenly interested in management's ability to do more with what has been given to it. Management's effectiveness is measured by the returns generated from the assets under its control, and from the equity invested into the company by shareholders.
For their managerial performance, Clorox's management team delivered the greatest returns on assets and equity, where Jarden's team delivered the least.
• Earnings Per Share: Of all the metrics measuring a company's income, earnings per share is probably the most meaningful to shareholders, as this represents the value that the company is adding to each share outstanding. Since the number of shares outstanding varies from company to company, I prefer to convert EPS into a percentage of the current stock price to better determine where an investment could gain the most value.
Of the three companies here compared, Rubbermaid provides common stock holders with the greatest diluted earnings per share gain as a percentage of its current share price, while Jarden's DEPS over current stock price is lowest.
• Share Price Value: Even if a company outperforms its peers on all the above metrics, however, investors may still shy away from its stock if its price is already trading too high. This is where the stock price relative to forward earnings and company book value come under scrutiny, as well as the stock price relative to earnings relative to earnings growth, known as the PEG ratio. Lower ratios indicate the stock price is currently trading at a cheaper price than its peers, and might thus be a bargain.
Among our three combatants, Jarden's stock is cheapest relative to forward earnings, company book value and 5-year PEG, while Clorox's is the priciest relative to all ratios.
B) Estimates and Analyst Recommendations
Of course, no matter how skilled we perceive ourselves to be at gauging a stock's prospects as an investment, we'd be wise to at least consider what professional analysts and the companies themselves are projecting - including estimated future earnings per share and the growth rate of those earnings, stock price targets, and buy/sell recommendations.
• Earnings Estimates: To properly compare estimated future earnings per share across multiple companies, we would need to convert them into a percentage of their stocks' current prices.
Of our three specimens, Jarden offers the highest percentages of earnings over current stock price for the current quarter and 2015, where Clorox offers it for the next quarter. At the low end of the scale, Clorox and Jarden reciprocate each other.
• Earnings Growth: For long-term investors this metric is one of the most important to consider, as it denotes the percentage by which earnings are expected to grow or shrink as compared to earnings from corresponding periods a year prior.
For earnings growth, Jarden offers the greatest growth in all time periods, where Clorox offers the slowest growth overall.
• Price Targets: Like earnings estimates above, a company's stock price targets must also be converted into a percentage of its current price to properly compare multiple companies.
For their high, mean and low price targets over the coming 12 months, analysts believe Jarden's stock offers the greatest upside potential and greatest downside risk, while Clorox's stock offers the least upside and Rubbermaid's offers the least downside.
• Buy/Sell Recommendations: After all is said and done, perhaps the one gauge that sums it all up are analyst recommendations. These have been converted into the percentage of analysts recommending each level. However, I factor only the strong buy and buy recommendations into the ranking. Hold, underperform and sell recommendations are not ranked since they are determined after determining the winners of the strong buy and buy categories, and would only be negating those winners of their duly earned titles.
Of our three contenders, Jarden is best recommended with 6 strong buys and 9 buys representing a combined 88.23% of its 17 analysts, followed by Rubbermaid with 6 strong buy and 8 buy ratings representing 82.35% of its 17 analysts, and lastly by Clorox with 1 strong buy and 0 buy recommendations representing 5.88% of its 17 analysts.
Having crunched all the numbers and compared all the projections, the time has come to tally up the wins and losses and rank our three competitors against one another.
In the table below you will find all of the data considered above plus a few others not reviewed. Here is where using a company's market cap as a denominator comes into play, as much of the data in the table has been converted into a percentage of market cap for a fair comparison.
The first and last placed companies are shaded. We then add together each company's finishes to determine its overall ranking, with first place finishes counting as merits while last place finishes count as demerits.
And the winner is… Jarden with a squeaky clean victory, outperforming in 21 metrics and underperforming in 10 for a net score of +11, followed far behind by Rubbermaid, outperforming in 3 metrics and underperforming in 3 for a net score of 0, with Clorox spilled-out on the floor in a distant third, outperforming in 8 metrics and underperforming in 18 for a net score of -10.
Where the Houseware & Accessories industry is expected to outperform the S&P broader market modestly this quarter, underperform significantly next quarter, then outperform substantially in 2015 and moderately beyond, the three largest companies in the space are expected to perform much as they have throughout the recovery, with Clorox under-growing, Rubbermaid improving from underperformance to outperformance, and Jarden outgrowing its peers and the broader S&P average growth rate.
After taking all company fundamentals into account, Jarden Corp provides investors with the most sparkling financials, given its lowest stock price ratios, highest cash and revenue over market cap, highest current ratio, highest trailing revenue and earnings growth, highest EBITDA over market cap, highest future earnings over current stock price overall, highest future earnings growth in all periods, best high and mean price targets, and most strong buy and buy analyst recommendations - decisively winning the Houseware & Accessories industry competition.