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Raymond James Upgrades Newell Brands to ‘Strong Buy’

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Price movement

Newell Brands (NWL) has a market cap of $24.3 billion. It rose 2.5% to close at $50.41 per share on November 8, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were 4.7%, -1.8%, and 15.8%, respectively, on the same day. NWL is trading 0.33% below its 20-day moving average, 2.1% below its 50-day moving average, and 7.4% above its 200-day moving average.

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Related ETF and peers

The Vanguard Large-Cap ETF (VV) invests 0.12% of its holdings in Newell Brands. The ETF tracks a market-cap-weighted index that covers 85% of the market capitalization of the US equity market. The YTD price movement of VV was 6.5% on November 8. The market caps of Newell Brands’ competitors are as follows:

  • Fortune Brands Home & Security (FBHS) — $8.4 billion
  • Avery Dennison (AVY) — $6.4 billion
  • Tupperware Brand (TUP) — $3.1 billion

Newell Brands’ rating

On November 8, 2016, Raymond James upgraded Newell Brands’ rating to “strong buy” from “outperform” and set the stock’s price target at $57 per share.

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Performance of Newell Brands in 3Q16

Newell Brands reported 3Q16 net sales of $4.0 billion, a rise of 158.5% over the net sales of $1.5 billion in 3Q15, due to the acquisition of Jarden. The company’s gross profit margin and operating income narrowed by 690 basis points and 400 basis points, respectively, between 3Q15 and 3Q16. The gross margin narrowed due to the negative effect of the Jarden acquisition, the deconsolidation of Venezuelan operations, inventory step-up charges, and foreign currency. The negatives were partially offset by synergies, pricing, and productivity. The operating margin contracted due to the negative impact of transaction-related costs, acquisition-related amortization costs, and costs associated with the integration of Newell Rubbermaid and Jarden.

Its net income rose to $186.5 million, and its EPS (earnings per share) fell to $0.38 in 3Q16, compared with $134.2 million and $0.50, respectively, in 3Q15. It reported non-GAAP (generally accepted accounting principles) normalized EPS of $0.78 in 3Q16, a rise of 25.8% over 3Q15.

NWL reported cash and cash equivalents and inventories of $670.0 million and $2.4 billion, respectively, in 3Q16, compared with $266.2 million and $898.8 million in 3Q15. Its current ratio rose to 1.9x, and its debt-to-equity ratio fell to 2.0x in 3Q16, compared with 1.1x and 2.7x, respectively, in 3Q15.

Projections

Newell Brands has made the following projections for fiscal 2016:

  • reported net sales growth of 122.5% to 128.0%
  • core sales growth of 3.5% to 4.0%
  • normalized EPS of $2.85 to $2.90
  • effective tax rate of 27.5%

The company has made the following projections for fiscal 2017:

  • core sales growth of 3% to 4%
  • normalized EPS of $2.85 to $3.05
  • tax rate of 26% to 27%

Next, we’ll look at Kellogg (K).

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