On Monday, Canaccord Genuity reaffirmed its Buy rating on Helen of Troy (NASDAQ:HELE), maintaining a price target of $84.00.
Helen of Troy is set to disclose its second-quarter fiscal year 2025 earnings on October 9, before the market opens. Canaccord's earnings per share (EPS) estimate for the quarter is $1.05, which is slightly higher than the consensus estimate of $1.04. This estimate suggests a year-over-year decline of 39.9% in earnings, which is more optimistic than the company's own forecast of a 45% to 35% decrease.
According to Canaccord, Helen of Troy's sales are expected to drop by 6.0%, compared to a 6.7% decline anticipated by the Street, and within the company's own guidance of a 7% to 4% decrease. In the previous quarter, Helen of Troy's management highlighted consumer softness and operational challenges, particularly with the automation issues at the new Tennessee facility. These issues were expected to be resolved by the end of the second quarter of fiscal year 2025.
Despite the anticipated sales and margin deterioration for the fiscal year, Helen of Troy is projected to generate substantial cash flow. Management has provided guidance of $220 million to $240 million in free cash flow (FCF) for the year, which implies an FCF yield of approximately 16%.
"We also expect HELE to continue to execute on its plans of investing into "invest to grow" brands, potentially divest from lower-margin noncore assets, continue to delever, and get benefits from Project Pegasus and see margin leverage once automation is fully running in their newest DC," said Canaccord analysts.
In other recent news, Helen of Troy Limited announced a share repurchase program of $500 million, part of its strategy to deliver shareholder value. The initiative represents roughly 43% of the company's outstanding common stock and is set to last for three years. This comes alongside Helen of Troy's recent fiscal challenges, with first-quarter earnings and revenue results for fiscal year 2025 falling short of expectations, leading to a nearly 20% reduction in its earnings per share forecast.
In response, DA Davidson downgraded Helen of Troy's stock from Buy to Neutral, and UBS also adjusted their outlooks for the company.
In other developments, Helen of Troy shareholders recently approved the election of directors, executive compensation, and the ratification of the company's auditor at its Annual General Meeting. The company's management has signaled this fiscal year as a "reset year," with a focus on brand building and business restructuring.
InvestingPro Insights
Recent InvestingPro data adds context to Canaccord Genuity's analysis of Helen of Troy (NASDAQ:HELE). The company's market capitalization stands at $1.43 billion, with a P/E ratio of 9.79, suggesting a potentially undervalued stock relative to earnings. This aligns with Canaccord's maintained Buy rating and $84 price target.
InvestingPro Tips highlight that management has been aggressively buying back shares, indicating confidence in the company's future prospects. This strategy could support earnings per share growth, even as revenue faces challenges. Additionally, Helen of Troy's liquid assets exceed short-term obligations, which supports the company's ability to navigate the operational challenges mentioned in the article.
The stock's recent performance has been mixed, with a strong 14.52% return over the last month, but a significant 40.78% decline over the past six months. This volatility reflects the operational issues and consumer softness discussed in the article.
For investors seeking a deeper understanding of Helen of Troy's financial health and market position, InvestingPro offers 11 additional tips, providing a comprehensive analysis to inform investment decisions.
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