Jefferies Hits Newell Rubbermaid With A Buy, Adds To Franchise Pick List

• Newell Rubbermaid Inc. NWL has seen an almost 6 percent increase in its share price year-to-date.
• Jefferies’ Kevin Grundy has initiated coverage of the company with a Buy rating and price target of $50, while adding the stock to Jefferies’ Franchise Pick list.
• Grundy explained that the company’s organic sales growth is accelerating, while there is clear visibility into operating margin improvements. Capital deployment is expected to add to the company’s EPS growth.

“We believe CEO Polk and team will continue to maximize value from what has historically been viewed by investors as a sub-par portfolio of disparate businesses,” Grundy stated, while expected Newell Rubbermaid to see sales growth of 4-5 percent during FY2015-18, as compared to about 3 percent during FY2011-14.

The organic sales growth is expected to be driven by investment in the company’s “Win Bigger” businesses, while targeted M&A is expected to accelerate the growth profile.

In addition, Project Renewal offers increased visibility into margin improvement for Newell Rubbermaid. According to the Jefferies’ report, “To date, the program has largely unlocked P&L capacity to drive reinvestment; however, as a materially greater portion flows through to EPS, we est. that productivity savings alone could drive $0.40 of EPS, net, through FY17.”

Grundy believes that the company would be able to generate mid-teens EPS growth through FY18, while working capital improvement and capital deployment would add value for shareholders.

“NWL will have some $2.4B in uncommitted cash to deploy through FY20 and management will be choiceful as it balances its M&A ambitions with share repurchases,” Grundy added, while stating that a better focus on working capital, along with the decline in cash restructuring charges, could lead to a 100 percent FCF conversion in FY16-17, from 85 percent in FY12-15.