Jefferies Attempts To Frame The Risk To Hain Celestial From Accounting Issues

Following its due diligence into the issues surrounding an audit committee review announced by Hain Celestial Group Inc. HAIN in mid-August, Jefferies presented its proprietary framework for estimating stock price under three possible scenarios.

Jefferies expects a further update from the company in late September or early October. Based on consultations with forensic accountant, a few CFOS who have gone through similar situations and a review of distributor contracts, the firm is of the view that the accounting issue is limited to the timing of concessions offered to certain distributors and is unlikely to lead to material restatements.

In a worst-case scenario, which may arise out of bigger than revealed accounting issues and materialization of material restatement, analyst Akshay Jagdale sees the stock price dropping to $29. In the best case, stock could go up to $50, with probability-weighted estimate at $42.

Jeffries noted that since April, overall results of Hain Celestial have dipped by 100 basis points, primarily attributable to its tail portfolio. However, sales growth of its top brands portfolio, accounting for roughly 70 percent of sales, has remained stable.

Despite the uncertainty, Jefferies believes its brands are worth more than where the stock trades currently. Accordingly, the firm maintains its Buy rating and $50 price target on shares.

At last check, shares of Hain Celestial were trading up 1.51 percent at $35.28.