Why The Street Could Be Underestimating Helen Of Troy's Earnings Potential

Despite margins are off peak levels, the brokerage said the company could expand margins by continued mix shift, real estate consolidation and reducing overlapping systems.

"We believe HELE has several GM levers (mix shift from M&A/SKU rationalization) as well as areas for further SG&A savings (RE consolidation) that could contribute to sizable margin expansion in the coming years," analyst Trevor Young wrote in a note.

Young noted that his aspirational "best case" peak margin scenario, which assumes Helen of Troy can simultaneously achieve peak GM and trough SG&A by FY18. The scenario points to more than 600bps margin opportunity over the long-term, which in turn could drive EPS of $9.75 (+45 percent versus the consensus).

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"We don't expect this scenario to come to fruition in the M-T, but rather believe this exercise shows consensus isn't reflecting the L-T margin oppty for HELE," Young continued.

"HELE's 46 percent GM would be above avg., but within a +/- 1 standard dev. range. SG&A would also be above avg., suggesting this margin profile isn't unrealistic," Young added.

Young reiterated his Buy rating on the stock. The analyst also raised his 2016 EPS estimates to $6.25 from $6.23 and raised price target by $2 to $116.

At time of writing, shares were up 1.76 percent to $92.30.

Full ratings data available on Benzinga Pro.