In July, Newell Brands Inc. (NWL, Financial) was trading in the $50 range, but now the stock has fallen to levels last seen in 2013. The 115-year-old consumer packaged goods company is trading at less than one times sales and book with a forward price-earnings ratio below nine times - numbers that are far below the company’s own averages. The company’s latest selloff started last week with an announcement it is liquidating some of its assets. Selling assets typically equates to lower sales and profit.Â
The company, however, still expects sales growth of just under 1%, well below the prior outlook of 1.5% to 2%, and earnings per share to fall in the range of $2.72 to $2.76. If Newell hits those numbers, the stock is a massive bargain right now. The company also revealed a plan to transform itself, which would include exploring options for industrial and commercial assets in hopes of reducing its factory and warehouse footprint by 50%. Newell is also planning to chop some of its brands, including Rawlings, Goody, Rubbermaid Outdoor, Closet, Refuse and Garage and U.S. Playing Cards.
Newell is looking to focus on nine core divisions that account for $11 billion in sales and $2 billion in earnings before interest, taxes, depreciation and amortization (EBITDA). It’s not as though the extra $4 billion in sales and $500 million EBITDA add to the company’s brand. In my opinion, selling off underperforming assets is not a bad idea if management can actually do it. Who is to say anyone wants those assets, and at what price. It would be nice if the company could pay down some of the $10 billion in long-term debt it currently carries on its books.
Investors will have to wait and see if Newell’s plan works out, but looking at the company’s remaining brands brings hope of future growth. Last week’s stock selloff was overblown and investors getting in now are not only going to receive a 3.4% annual dividend, but will own shares alongside some of the best investors of all time.
Lee Ainslie (Trades, Portfolio) , Jim Simons (Trades, Portfolio), Murray Stahl (Trades, Portfolio), Andreas Halvorsen (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio) and Mario Gabelli (Trades, Portfolio) all have positions in the stock. And they are all down big.
In addition, with a $12 billion market cap, Newell’s restructuring moves and cost-cutting measures are well under way to adding value. The growth of its e-commerce business, brand-enhancing investments and strengthening distribution will also lift revenues. Newell still has a three-year $1 billion stock repurchase plan in place, which will lift ownership positions for its current shareholders and move per-share comparisons higher.
In the long term, look for per-share earnings to move higher organically. Through financial engineering, a multiple readjustment will unlock even more value. Short term, if earnings per share do come in around $2.75 for 2018 and the multiple moves to 15 times, the stock will trade over $40 a share - good for 60% upside.
Disclosure: I am not long or short Newell.
