Wunderlich: WD-40 'Remains Strong' Despite FX Headwinds, Still Worth $90/Share

WD-40 Company WDFC continues to fall on Thursday, after tumbling in after-hours Wednesday, responding to disappointing financial results reported Wednesday afternoon.

Earnings came in at $0.75 per share, one cent below consensus, while sales stood at $92.49 million versus the Street’s estimate of $99.4 million.

Despite the unsatisfactory results, Wunderlich analyst Liam D. Burke assures the “underlying business remains strong in the face of FX headwinds.”  The analyst thinks the company has effectively executed its strategy of leveraging the weight of the WD-40 core brand by creating brand extensions and increasing its presence industrial and MRO markets.

Moreover, the firm notes, WD-40 has been consistent in the generation of free cash flow. In addition to selective acquisitions, the company has reliably returned cash to shareholders via dividend payments and share repurchases.

The report highlights four key points for WD-40 investors:

• Sales declined 3.3 percent, “with negative currency translation and weakness in certain European markets.”
• The company reported third quarter earnings of $0.75 per share, up 8 percent year-over-year, but still short of expectations. Revenue of $97.3 million also missed forecasts, but gross margins were 170 basis points higher than Wunderlich anticipated.
• Gross margins and operating margins rose by 190 bps year-over-year.
• Cash flow remained strong, at $2.12 per share on EPS of $2.24 during the first nine months of fiscal 2015.

Wunderlich maintains a Hold rating (as strong growth prospects and fundamentals are already reflected in the valuation) and $90.00 price target on shares of WD-40.