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Bank of America/Merrill Lynch Downgrades Spectrum Brands to ‘Neutral’

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Price movement

Spectrum Brands Holdings (SPB) has a market cap of $7.2 billion and fell 2.8% to close at $119.81 per share on January 10, 2017. The stock’s weekly, monthly, and YTD (year-to-date) price movements were -0.87%, -1.2%, and -2.1%, respectively, on the same day.

SPB is now trading 1.8% below its 20-day moving average, 3.8% below its 50-day moving average, and 2.1% below its 200-day moving average.

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Related ETF and peers

The iShares Morningstar Mid-Cap Growth Index Fund (JKH) invests 0.23% of its holdings in Spectrum Brands. The YTD price movement of JKH was 2.6% on January 10.

The market caps of Spectrum Brands’ competitors are as follows:

  • The Procter & Gamble (PG): $223.5 billion
  • Masco (MAS): $10.6 billion
  • Edgewell Personal Care (EPC): $4.4 billion

SPB’s rating and performance in fiscal 4Q16

On January 10, 2017, Bank of America/Merrill Lynch has downgraded Spectrum Brands Holdings’ rating to “neutral” from “buy.”

Spectrum Brands reported fiscal 4Q16 net sales of $1.3 billion—a fall of 4.5%, as compared to its net sales of $1.3 billion in fiscal 4Q15. The company’s gross profit margin and operating margin expanded 320 basis points and 240 basis points, respectively, in fiscal 4Q16 over 4Q15. Its gross margin rose due to a favorable mix and higher productivity, partially offset by an unfavorable foreign exchange impact.

SPB’s net income and EPS (earnings per share) rose to $89.0 million and $1.49, respectively, in fiscal 4Q16, as compared to $26.5 million and $0.44, respectively, in fiscal 4Q15. It reported adjusted EPS of $1.31 in fiscal 4Q16—a rise of 15.9% over fiscal 4Q15.

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Fiscal 2016 results

In fiscal 2016, SPB reported net sales of $5.0 billion—a rise of 7.4% YoY (year-over-year). The company’s gross profit margin and operating margin expanded 250 basis points and 290 basis points, respectively, in fiscal 2016. The rise in SPB’s gross margin was due to its acquisition of Global Auto Care (GAC) and its favorable mix, partially offset by an unfavorable foreign exchange impact.

SPB’s net income and EPS rose to $357.1 million and $5.99, respectively, in fiscal 2016, as compared to $148.9 million and $2.66, respectively, in fiscal 2015. The company reported adjusted EPS of $5.20 in fiscal 2016—a rise of 20.6% YoY. SPB’s cash and cash equivalents rose 11.1%, and its inventories fell 5.1% in fiscal 2016.

Projections

Spectrum Brands has made the following projections for fiscal 2017:

  • adjusted free cash flow of $575.0 million–$590.0 million
  • capital expenditure of $110.0 million–$120.0 million

Now we’ll look at Procter & Gamble (PG).

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