On Monday, Citi raised the price target for Newell Rubbermaid (NASDAQ:NWL) shares to $9.50 from $8.00, while maintaining a Neutral rating. The adjustment follows Newell Rubbermaid's third-quarter earnings report, which revealed stronger than anticipated gross margin (GM) and operating margin (OM) results, as well as an earnings per share (EPS) that exceeded expectations, aside from changes in pro forma normalization practices.
Despite a slight shortfall in core sales compared to analyst expectations, the company has increased its profit, EPS, and cash flow guidance for 2024. Moreover, Newell Rubbermaid has indicated that they expect core sales growth to begin in 2025.
The company's stock experienced a significant surge, climbing 21.5%. This rise was noted to have occurred after a period where Newell Rubbermaid was heavily shorted, according to Citi's Quantitative Data. This pattern of stock movement was also observed in the previous quarter.
Citi analysts acknowledge that while Newell Rubbermaid's stock reaction was similar to last quarter, there is growing evidence that the company's new corporate strategy and enhanced execution may lead to sustainable improvements in core sales, profitability, and cash flow.
The revised price target of $9.50 is based on an estimated 12.5 times the calendar year 2025 price-to-earnings ratio (P/E), which is still significantly lower than that of Home and Personal Care (HPC) industry peers. This valuation reflects Newell Rubbermaid's comparatively lower growth and less certain outlook.
Despite the upgraded price target, Citi maintains a Neutral rating on the stock due to the expectation of a subdued near-term sales outlook and ongoing low visibility. However, the firm expresses a cautiously optimistic view regarding the potential for sales growth in 2025.
In other recent news, Newell Brands has reported its third-quarter financial results, revealing a blend of strategic successes and challenges. Despite a 1.7% decline in core sales and a 4.9% decrease in net sales, the company managed to achieve a normalized operating margin of 9.5% and reduce net debt by over $560 million.
The company's management has raised its full-year outlook for operating margin, earnings per share, and cash flow. The full-year normalized EPS guidance has been increased to $0.63 to $0.66, with an operating cash flow forecast raised to $500 million to $600 million.
Canaccord Genuity has maintained a Buy rating on Newell Brands and increased the price target to $13.00 following these recent developments. The firm's analysis indicates that Newell Brands' new strategy, focusing investment on its most profitable brands, is showing positive results with a significant sequential improvement in gross margin and sales.
Management at Newell Brands anticipates a return to top-line growth next year, supporting Canaccord Genuity's confidence in the company's performance and strategic direction. Despite these positive trends, core sales are expected to decline by 2% to 5% in Q4 2024, and net sales are projected to decrease by 4% to 7% in the same quarter.
Newell Brands continues to focus on product mix over pricing strategies to enhance gross margins, exit structurally unsound businesses, and diversify its supply chain to reduce reliance on China.
InvestingPro Insights
Recent data from InvestingPro provides additional context to Newell Rubbermaid's performance and Citi's analysis. The company's stock has shown impressive momentum, with a 30.78% price total return over the past year. This aligns with Citi's observation of the significant stock surge following the earnings report. The year-to-date price total return of 16.05% further underscores the positive investor sentiment, possibly reflecting growing confidence in the company's new corporate strategy and improved execution.
Interestingly, while the 1-week and 1-month returns are slightly negative (-1.37% and -0.27% respectively), the 3-month and 6-month returns (4.81% and 9.28%) indicate a broader upward trend. This data supports Citi's cautiously optimistic view on the company's potential for sales growth in 2025.
InvestingPro Tips highlight additional factors that investors should consider. These tips, along with many others available on the InvestingPro platform, offer deeper insights into Newell Rubbermaid's financial health and market position. To access the full range of tips and gain a comprehensive understanding of the company's prospects, consider exploring the InvestingPro product.
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