Wedbush Morgan Upgrades Helen of Troy to Neutral (HELE)

Wedbush Morgan is out with a research report this afternoon, where it upgraded shares of Helen of Troy

to Neutral from Underperform; its analysts have a $22 price target on the stock. The Wedbush Morgan analysts said, “Since management acknowledged on their earnings call last month that FY11 gross margins would be challenged by rising commodity and freight costs, shares of HELE have gradually sold down close to our $22 price target. Given this recent selloff, combined with moderating resin prices the past few weeks, we are raising our opinion to Neutral from Underperform. Though we continue to believe the company will fall short of consensus earnings estimates in 2H: FY11, as higher cost inventory flows through cost of goods in that period, we believe this may already be discounted into current share price levels following the recent selloff.” The analysts added, “From plastic kitchen tools, to bottles for the liquids business, to hair dryers and accessories, Helen of Troy’s entire product lineup uses plastic resin as a raw material. Since the company purchases roughly 5-6 months’ worth of inventory from third-party producers and uses FIFO accounting, the impact from the 20-30% spike in spot resin prices around Jan/Feb 2010 should begin to be reflected in gross margins for 2H:FY11. However, we note that in the past month, spot resin prices have fallen about 20% from earlier this calendar year, a favorable indicator for cost of goods in FY12.” The Wedbush analysts also noted, “The fast-growing OXO housewares business (31% of sales) has posted impressive double-digit sales growth through the difficult economic downturn, partly offsetting single-digit declines in personal care (69% of sales). New product launches and expanded global distribution for OXO should continue driving solid growth going forward. In addition, the recently acquired Sure deodorant and Pert Plus shampoo businesses should contribute roughly $65 million in annual sales.”