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Newell’s Acquisition of Jarden: High Risk, High Leverage

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Newell Rubbermaid’s price movements 

Newell Rubbermaid (NWL) has a market cap of $9.9 billion. NWL fell by 2.7% to close at $37.15 per share as of January 27, 2016. The price movements on weekly, monthly, and year-to-date (or YTD) bases are 3.0%, -14.8%, and -15.7%, respectively.

Technically, the stock has broken the support and is trading below all moving day averages. Currently, NWL is trading 7.0% below its 20-day moving average, 13.1% below its 50-day moving average, and 10.5% below its 200-day moving average.

The PowerShares DWA Consumer Staples Momentum ETF (PSL) invests 3.0% of its holdings in Newell Rubbermaid. The ETF tracks an index of US consumer cyclical companies selected and weighted by price momentum. The YTD price movement of PSL is -4.8% as of January 26, 2016.

Newell Rubbermaid’s (NWL) competitors and their market caps are as follows:

  • Fortune Brands Home & Security (FBHS): $7.5 billion
  • Avery Dennison (AVY): $5.4 billion
  • Tupperware Brands (TUP): $2.2 billion
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Acquisition of Jarden will boost Newell’s business

On December 14, 2015, Newell Rubbermaid entered into an agreement with Jarden (JAH) to combine companies. This combination will create a $16 billion consumer goods company in the name of Newell Brands. Leading brand names will include Paper Mate, Sharpie, EXPO, Parker, Elmer’s, Calphalon, Rubbermaid, Graco, Coleman, NUK, Oster, Rawlings, and Yankee Candle.

On January 27, 2016, Moody’s announced that this acquisition will boost Newell’s business at the expense of high integration risks and leverage. Moody’s also affirmed Newell’s Baa3 rating.

Newell Rubbermaid’s performance in fiscal 3Q15

Newell Rubbermaid (NWL) reported fiscal 3Q15 net sales of $1,530.0 million, a rise of 3.1% when compared to net sales of $1,484.5 million in fiscal 3Q14. Its net income and EPS (earnings per share) rose to $134.2 million and $0.50, respectively, in fiscal 3Q15, compared to $122.3 million and $0.44, respectively, in fiscal 3Q14.

Accounts receivable and inventories rose 1.1% and 13.9%, respectively, in fiscal 3Q15 compared to the prior year period. Its debt-to-equity ratio rose to 2.8 in fiscal 3Q15 compared to 2.1 in fiscal 3Q14.

The PE (price-to-earnings) and PBV (price-to-book value) ratios of Newell Rubbermaid are 26.0x and 5.6x, respectively, as of January 27, 2016.

The company has projected the following figures for fiscal 2015 and fiscal 2016:

Fiscal 2015:

  • net sales to rise in the range of 3.0%–3.5%
  • normalized EPS in the range of $2.14–$2.20

Fiscal 2016 (including Venezuela):

  • net sales to rise in the range of 2.5%–3.5%
  • normalized EPS in the range of $2.35–$2.44

Fiscal 2016 (excluding Venezuela):

  • net sales to rise in the range of 2.5%–3.5%
  • normalized EPS in the range of $2.21–$2.30
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