Monday, Spectrum Brands (NYSE:SPB) received a revised price target from Canaccord Genuity, increasing from $91.00 to $94.00, while the firm maintained a Hold rating on the stock. The adjustment follows Spectrum Brands' recent earnings report, which presented a mixed outcome for the fourth quarter. The company's sales surpassed consensus by approximately 4%, led by its Home and Garden segment, which experienced a surge in consumer demand due to storm activity, resulting in sales approximately 5% higher than anticipated.
The Global Pet Care division also reported sales slightly above consensus, bolstered by new cat treat products. The Home and Personal Care segment's performance was noteworthy as well, with sales around 4% higher than expected, indicating the onset of a replacement cycle for small kitchen appliances. However, despite these sales achievements, Spectrum Brands' profitability fell short of expectations. The adjusted EBITDA and adjusted EPS were approximately 7% and 8% below consensus, respectively.
Canaccord Genuity's analysis reflected on the company's performance earlier in the year, acknowledging the impressive margin performance during the second quarter and the first half despite declining sales.
The firm had previously predicted that the easier profit growth phase had passed and that sustainable sales growth would be essential for further significant gains. This forecast appears to have materialized in the fourth quarter and is expected to continue in the foreseeable future as Spectrum Brands increases its investment spending in the second half of the year and into fiscal year 2025.
The timeline for the sale or separation of Spectrum Brands' Home and Personal Care business has also been extended. Canaccord Genuity suggests that the company should not rush the sale if a higher valuation could be achieved later.
The firm notes that competitors such as SharkNinja are raising the bar for innovation, and others like Newell Brands are following suit, potentially leading to less commoditization in the segment and the possibility of higher valuation multiples. In light of these factors, Canaccord Genuity reiterated its Hold rating but raised its price target due to increased estimates.
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