Edgewell Personal Care May Be Worth Watching... Eventually
- Edgewell Personal Care got rid of its lighting and battery business to focus on the personal care segment.
- The company possesses plenty of cash to pay down debt and market its products.
- Edgewell Personal Care is undervalued on a forward basis.
Edgewell Personal Care (NYSE: NYSE:EPC) represents the personal products business of the old Energizer Holdings (NYSE: ENR). The "old" Energizer Holdings (now Edgewell Personal Care) decided to separate its household products business, which became the "new" Energizer Holdings. Given its focus on its personal care core competency, I think investors should take a hard look at Edgewell Personal Care after it gets past the pains stemming from the spin-off transition. Here's why.
A strong product portfolio
Edgewell Personal Care sells some well-known products under brand names such as Schick razors, Edge shaving cream, Banana Boat sun care, Playtex baby products and Wet Ones hand wipes. Companies that sell personal care products can make good investments. The repeatability of purchases by the final consumer, combined with small potential price increases can offer long-term fundamental expansion. People need personal care products to take care of themselves and their surroundings, fulfilling a need in society. Also, branding can add customer loyalty, assuming the product is of sound quality.
Plenty of cash on balance sheet
In the most recent quarter, Edgewell Personal Care's balance sheet indicated $1 billion in cash and equivalents. This represented an amazing 48% of stockholders' equity. If this cash balance holds up through the transition process, it will give the company plenty of money to fund the marketing of its product portfolio and to come up with new products and product enhancements.
It would also give the company better ability to support its dividend. Currently, the company pays shareholders $2 per share per year and yields 2.3%. Moreover, it would allow Edgewell Personal Care Products to pay down its long-term debt, which is a downer at 110% of stockholders' equity. I like to see companies with long-term debt-to-equity at 50% or less of stockholders' equity.
Company may get back on track after spin-off
In the most recent quarter, Edgewell Personal Care saw its personal care sales decline 6% year-over-year. However, when factoring out things such as currency fluctuations and acquisitions and divestitures, the company saw its personal care sales edge forward to the tune of 0.7%, which isn't bad for one preoccupied with a spin-off. Unfortunately, the company expects organic sales to decline in the low- to mid-single digits range for its FY 2015. Analysts are even expecting sales to decline through at least FY 2016. However, once the spin-off is behind them, management can utilize the portfolio of brands to effectively compete with companies such as Church & Dwight (NYSE: CHD) and Procter & Gamble (NYSE: PG).
Edgewell Personal Care incurred some extraordinary expenses stemming from the spin-off, which suppressed earnings. As a result, the company currently trades at an astronomical P/E of 133, according to Morningstar. On a forward basis, it is actually undervalued, trading at a forward P/E of 17 versus 19 for the S&P 500 as a whole.
I think investors should wait and see if this company can get on track strategically and financially. I would like to see some consistency in Edgewell Personal Care's organic growth and reduction in its long-term debt before I would consider investing.
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