Rating Update: Stock Rating B-Positive (3/19/24)-Edgewell Personal Care Co (EPC).

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BUSINESS

Edgewell Personal Care Company manufactures and markets personal care products in the wet shave, sun and skin care, feminine care, and infant care categories the United States and internationally. The company operates through four segments: Wet Shave, Sun and Skin Care, Feminine Care, and All Other. It offers Schick and Wilkinson Sword razor systems, including razor handles and refillable blades, and disposable shave products for men and women; and shave preparation products, such as shaving gels and creams under the Edge, Skintimate, and Shave Guard brands. The company also manufactures, distributes, and sells private label and value-priced wet shaving disposable razors, shaving systems, and replacement blades under a retailer’s store name or under the Personna name.
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INVESTMENT RATING

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EPC is expected to continue to be a Value Builder reflecting capital returns that are forecasted to be above the cost of capital.

Edgewell Personal Care has a current Value Trend Rating of B (Positive).
With this rating, PTR’s two proprietary measures of a stock’s current attractiveness are providing highly consistent signals. Edgewell Personal Care has a slightly positive Appreciation Score of 66 and a slightly positive Power Rating of 66, leading to the Positive Value Trend Rating.

Edgewell Personal Care’s stock is selling well below targeted value. The current stock price of $37.13 compares to targeted value 12 months forward of $66.
This moderately high appreciation potential results in an appreciation score of 66 (only 34% of the universe has greater appreciation potential.)
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Edgewell Personal Care has a Power Rating of 66. (This slightly positive Power Rating indicates that EPC’s chances of achieving favorable investment performance over the near to intermediate term are only average.)
Factors contributing to this slightly positive Power Rating include: the recent trend in EPC’s earnings estimates has been extremely favorable; and the Cutlery, Hand Tools, General Hardware comparison group is in an extremely strong phase currently. An offsetting factor is recent price action has been neutral.

INVESTMENT PROFILE

EPC’s financial strength is low. Financial strength rating is 19.
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Relative to the S&P 500 Composite, Edgewell Personal Care Co has significant Value characteristics; its appeal is likely to be to Income-oriented investors; the perception is that EPC is normal risk. All factors are relative weaknesses. Relative weaknesses for EPC include: low forecasted profitability, low historical profitability, low financial strength, and low expected growth. EPC’s valuation is low: moderate dividend yield, low P/E ratio, and low price/book ratio. EPC has unusually low market capitalization.

CURRENT SIGNALS

Edgewell Personal Care’s current operations are strong. Return on equity is rising, reflecting: improving asset utilization; widening pretax margins; and rising leverage.

Edgewell Personal Care’s current technical position is very weak. The stock price is in a 6.8 month down move. The stock has declined 19.3% from its prior high. The stock price is below its 200 day moving average which is in a downtrend. The stock has just fallen below its 200 day moving average.

ALERTS

Edgewell Personal Care Co (NYSE: EPC) has recently experienced significant negative changes in investment behavior: the stock’s recent price decline challenged its longer term uptrend.
The stock is currently rated B.
Edgewell Personal Care Co (NYSE: EPC) stock declined slightly by -0.03% on 3/19/24. The stock closed at $37.13. However, unusually low trading volume at 55% of normal accompanied the decline. The stock has declined -1.6% during the last week and has performed in line with the market over the last nine months.

CASH FLOW

In 2023, Edgewell Personal Care generated a significant increase in cash of +$27.7 million (+15%). Sources of cash were larger than uses. Cash generated from 2023 EBITDA totaled +$337.3 million. Non-operating uses consumed -$19.7 million (-6% of EBITDA). Cash taxes consumed -$37.0 million (-11% of EBITDA). Re-investment in the business amounted to -$127.9 million (-38% of EBITDA). On a net basis, debt investors pulled out -$91.1 million (-27% of EBITDA) while equity investors withdrew -$33.9 million (-10% of EBITDA).
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EPC’s Non-operating Income, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Edgewell Personal Care Peer Group. (Since 2019 Non-operating Income, %EBITDA has accelerated very sharply.) In most years, Edgewell Personal Care was in the third quartile and lower quartile. Currently, Edgewell Personal Care is at median at -6% of EBITDA (-$19.7 million).

EPC’s Cash Taxes, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Edgewell Personal Care Peer Group. (Since 2021 Cash Taxes, %EBITDA has experienced a very sharp decline.) In most years, Edgewell Personal Care was in the third quartile and lower quartile. Currently, Edgewell Personal Care is at the lower quartile at -11% of EBITDA (-$37.0 million).

EPC’s Business Re-investment, %EBITDA has suffered a very strong overall downtrend over the period. This downtrend was accompanied by stability for the Edgewell Personal Care Peer Group. In most years, Edgewell Personal Care was in the top quartile and second quartile. Currently, Edgewell Personal Care is substantially above median at -38% of EBITDA (-$127.9 million).

EPC’s Debt Investors, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Edgewell Personal Care Peer Group. In most years, Edgewell Personal Care was in the lower quartile and top quartile. Currently, Edgewell Personal Care is substantially below median at -27% of EBITDA (-$91.1 million).

EPC’s Equity Investors, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Edgewell Personal Care Peer Group. In most years, Edgewell Personal Care was in the lower quartile and top quartile. Currently, Edgewell Personal Care is slightly above median at -10% of EBITDA (-$33.9 million).

EPC’s Change in Cash, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Edgewell Personal Care Peer Group. In most years, Edgewell Personal Care was in the second quartile and lower quartile. Currently, Edgewell Personal Care is substantially above median at +8% of EBITDA (+$27.7 million).
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EPC’s Cash, %Revenue has experienced a minor downtrend over the period. This downtrend was accompanied by stability for the Edgewell Personal Care Peer Group. (Since 2021 Cash, %Revenue has acccelerated.) In most years, Edgewell Personal Care was in the third quartile and second quartile. Currently, Edgewell Personal Care is below median at +10%.

PROFITABILITY

EPC’s return on equity has improved very significantly since 2014. The current level is 7.0% versus the high of 14.1% and the low of -28.6%.
EPC’s very strong positive trend in pretax operating return significantly offset by a very strong negative trend in non-operating factors is a significant analytical factor.
The productivity of EPC’s assets rose over the full period 2014-2023: asset turnover has exhibited a volatile overall uptrend.
Reinforcing this trend, pretax margin enjoyed a volatile overall uptrend even as it experienced a sharp decline after the 2021 high.
Non-operating factors (income taxes and financial leverage) had a significant negative influence on return on equity.
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EPC’s return on equity is below median (7.0%) for the four quarters ended December, 2023.
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Operating performance (pretax return on assets) is below median (3.6%) reflecting asset turnover that is at the upper quartile (0.60X) and slightly below median pretax margin (6.0%).
Tax “keep” rate (income tax management) is at median (78.4%) resulting in after tax return on assets that is below median.
Financial leverage (leverage) is at median (2.45X).

GROWTH RATES

There are no significant differences between Edgewell Personal Care’s longer term growth and growth in recent years.
Edgewell Personal Care’s historical income statement growth has been in line with balance sheet growth. Revenue growth has paralleled asset growth; earnings growth has paralleled equity growth.

Annual revenue growth has been -1.8% per year.

Total asset growth has been -2.8% per year.

Annual E.P.S. growth has been 2.0% per year.

Equity growth has been -1.9% per year.

Edgewell Personal Care’s consensus growth rate forecast (average of Wall Street analysts) is 5.0% — substantially above the average of the historical growth measures.
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Relative to the Edgewell Personal Care Peer Group, Edgewell Personal Care’s historical growth measures are generally third quartile. E.P.S. growth (2.0%) has been substantially below median. Total asset growth (-2.8%) has been substantially below median. Equity growth (-1.9%) has been substantially below median. Revenue growth (-1.8%) has been lower quartile.

In agreement with this pattern, consensus growth forecast (5.0%) is slightly above median.
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PRICE HISTORY

Over the full time period, Edgewell Personal Care’s stock price performance has been variable and significantly below market. Between May, 2013 and March, 2024, Edgewell Personal Care’s stock price fell -61%; relative to the market, this was a -88% loss. Significant price moves during the period: 1) August, 2018 – June, 2019: -52%; and 2) May, 2015 – May, 2018: -69%.
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TOTAL INVESTMENT RETURNS

Current annual total return performance of -9.2% is lower quartile relative to the S&P 500 Composite.
In addition to being lower quartile relative to S&P 500 Composite, current annual total return performance through February, 2024 of -9.2% is substantially below median relative to Edgewell Personal Care Co Peer Group.

Current 5-year total return performance of -2.0% is lower quartile relative to the S&P 500 Composite.
Through February, 2024, with lower quartile current 5-year total return of -2.0% relative to S&P 500 Composite, Edgewell Personal Care’s total return performance is below median relative to Edgewell Personal Care Co Peer Group.
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VALUATION BENCHMARKS

Relative to S&P 500 Composite, EPC’s overall valuation is quite low. Four of five factors are lower quartile. The highest factor is the price/earnings ratio, followed by the ratio of enterprise value/earnings before interest and taxes, then by the ratio of enterprise value/assets, then by the ratio of enterprise value/revenue. The lowest factor, price/equity ratio, is lower quartile.

Relative to Edgewell Personal Care Peer Group, EPC’s overall valuation is normal. The highest factor, the ratio of enterprise value/assets, is slightly above median. Price/equity ratio is at median. Price/earnings ratio is at median. Ratio of enterprise value/revenue is at median. The lowest factor, the ratio of enterprise value/earnings before interest and taxes, is at the lower quartile.
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Edgewell Personal Care has no value gap compared to the median valuation. For EPC to rise to median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 1.47X to 1.47X. If EPC’s ratio of enterprise value/revenue were to rise to 1.47X, its stock price would be lower by $0 to $37.
For EPC to hit lower quartile valuation relative to the Edgewell Personal Care Peer Group, its current ratio of enterprise value/revenue would have to fall from the current level of 1.47X to 1.32X. If EPC’s ratio of enterprise value/revenue were to fall to 1.32X, its stock price would decline by $-7 from the current level of $37.

VALUE TARGETS

EPC is expected to continue to be a Value Builder reflecting capital returns that are forecasted to be above the cost of capital.
Edgewell Personal Care’s current Price Target of $69 represents a +85% change from the current price of $37.13.
This moderately high appreciation potential results in an appreciation score of 66 (only 34% of the universe has greater appreciation potential.)
Reinforcing this moderately high Appreciation Score of 66, the moderately high Power Rating of 66 contributes to an Value Trend Rating of B.
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Edgewell Personal Care’s current Price Target is $69 (+34% from the 2023 Target of $51 and +85% from the 03/19/24 price of $37.13). This dramatic rise in the Target is the result of a +6% increase in the equity base and a +27% increase in the price/equity multiple. The forecasted increase in return on equity has a very large positive impact on the price/equity multiple and the forecasted increase in growth has a very large positive impact as well. Partially offsetting these Drivers, the forecasted increase in cost of equity has a very large negative impact.
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PTR’s return on equity forecast is 9.6% — slightly above our recent forecasts. Forecasted return on equity suffered a dramatic, variable decline between 2015 and 2023. The current forecast is below the 2015 peak of 13%.

PTR’s growth forecast is 5.0% — slightly above our recent forecasts. Forecasted growth erratic between 2015 and 2023. The current forecast is above the 2015 peak of 0%.

PTR’s cost of equity forecast is 6.0% — slightly above recent levels. Forecasted cost of equity enjoyed a dramatic, erratic decline between 2015 and 2023. The current forecast is below the 2019 peak of 8.4%.
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At Edgewell Personal Care’s current price of $37.13, investors are placing a negative value of $-35 on its future investments. This view is not supported by the company’s most recent performance that reflected a growth rate of 0.0% per year, and a return on equity of 6.3% versus a cost of equity of 3.9%.
PTR’s 2025 Price Target of $69 is based on these forecasts and reflects an estimated value of existing assets of $56 and a value of future investments of $13.

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