Hain Celestial Has An Activist: How The Narrative Changes Now

Activist investor Engaged Capital announced a 9.9 percent stake in Hain Celestial Group Inc HAIN. The investment firm said in the filing that the shares are the company were undervalued and represented an attractive investment opportunity.

Engaging With Hain

Wells Fargo termed the stake to be at the high-end of its typical maximum position. The firm indicated that Engaged Capital typically seeks positions, trading more than 30 percent below perceived fair value. It began building positions in Hain Celestial in early May at $36.

Narrative Changes

Analyst John Baumgartner said the stake buy by the activist investor changes the narrative from disappointment with the recently reported fiscal year 2017 year-to-date EBITDA and doubts about the fiscal year 2018 guidance to one of what Hain Celestial is worth, in a potential takeout or sum of the parts.

Wells Fargo noted that Engaged Capital said in the filing it has engaged and intends to continue to engage with Hain's Board and management team regarding means to create stockholder value.

"Engaged has submitted seven candidates for election at Hain's next annual meeting," the firm added.

M&A Possibilities

Given the size of Hain Celestial, Wells Fargo said it won't be a small deal for a U.S. food company. The firm believes an asset sale to strategic buyers would unlock better value, given the breadth of category exposure and a shaky outlook for long-term revenue growth and margins, amid a competitive natural and organic industry.

Among the units, Wells Fargo thinks the Pure Protein business, accounting for 11 percent of the estimated EBITDA in calendar year 2018, and Personal Care assets, accounting for 10 percent of the estimated EBITDA in calendar year 2018, would be the easiest to divest to strategic buyers.

Lifting Price Target

As such, Wells Fargo maintains its Market Perform rating on the shares of Hain Celestial but lifted its price target from $35 to $42. The increased price target is based on its estimated sum of the parts value.

"Rapidly increasing competitive pressures and less certain visibility into long term pricing power lead us to think that the days of mid/high-teens EBITDA multiples are over," the firm said.

"While the activist news likely places a new floor for the stock (above 6/29's closing price), we'd generally approach the story with a tempered view of upside potential to valuation."

At the time of writing, Hain Celestial stock was surging up 10.04 percent at $39.35.

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