On Monday, DA Davidson maintained a Neutral rating on Helen of Troy (NASDAQ:HELE) shares but increased the price target from $71.00 to $78.00 following the company's agreement to purchase nail care company Olive & June for $240 million. The acquisition is valued at less than 11 times the calendar year 2025 estimated EBITDA, with the expectation that net leverage will be three times or lower at the closing of the deal.
The firm has adjusted its earnings per share (EPS) estimates for Helen of Troy to account for the anticipated accretion from the acquisition. For fiscal year 2025, the EPS estimate has been raised by $0.07, by $0.49 or 7% for fiscal year 2026, and by $0.70 or 9% for fiscal year 2027. The new price target of $78 is based on a nine times multiple of the firm's fiscal year 2027 estimated EPS of $8.62.
Olive & June has demonstrated a three-year sales compound annual growth rate (CAGR) of 26%, and its addition is expected to improve Helen of Troy's gross and EBITDA margins. DA Davidson highlighted the potential for Helen of Troy to facilitate Olive & June's launch on Amazon (NASDAQ:AMZN), noting that while synergies are likely, they have not been included in the current estimates.
The analyst also pointed out a concern regarding the acquisition: approximately 50% of Olive & June's cost of goods sold (COGS) are sourced from China, which may increase Helen of Troy's exposure to potential tariffs. Despite this risk, the firm's outlook on Helen of Troy remains cautiously optimistic with the updated price target.
In other recent news, Helen of Troy Limited has announced a merger agreement to acquire Olive & June, a leading innovator in the nail care industry. The acquisition, valued at $240 million, is expected to be completed by the end of 2024. This move aligns with Helen of Troy's strategic aim to diversify its product offerings. Olive & June will continue to operate with its experienced management team, while benefitting from Helen of Troy's scalable operating platform.
In the realm of financial performance, Helen of Troy reported Q2 fiscal 2025 results that surpassed market expectations, with adjusted earnings per share (EPS) of $1.21 and a net income of $17 million.
Despite a 3.5% decline in consolidated net sales, the company saw a 9% increase in U.S. distribution and significant international sales growth. Analysts from Canaccord Genuity and DA Davidson have adjusted their price targets for the company, maintaining a Buy and Neutral rating respectively.
Among other recent developments, Helen of Troy's "Reset and Revitalize" initiative and the integration of Curlsmith into the distribution network have been highlighted as contributing factors to the company's performance.
The company is also planning to reduce tariff exposure by diversifying production outside of China. These developments are shaping the company's trajectory, with Helen of Troy expecting full-year net sales to be between $1.885 billion and $1.935 billion, and adjusted EPS anticipated to fall between $7 and $7.50.
InvestingPro Insights
Recent InvestingPro data provides additional context to Helen of Troy's acquisition of Olive & June. The company's market capitalization stands at $1.6 billion, with a P/E ratio of 11.75, suggesting a relatively modest valuation compared to its earnings. This could indicate that the market has not fully priced in the potential benefits of the Olive & June acquisition.
InvestingPro Tips highlight that Helen of Troy's management has been aggressively buying back shares, which aligns with the company's strategic moves to enhance shareholder value. Additionally, the company's liquid assets exceed short-term obligations, indicating a strong financial position to support the acquisition and future growth initiatives.
Despite a significant 33.27% price decline over the past six months, Helen of Troy has shown a strong 31.03% return over the last three months. This recent positive momentum could reflect growing investor confidence in the company's strategic direction, including the Olive & June acquisition.
For investors seeking more comprehensive analysis, InvestingPro offers 10 additional tips for Helen of Troy, providing deeper insights into the company's financial health and market position.
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