Edgewell's Acquisition Of Harry's 'Isn't As Crazy As It Looks'

Consumer products company Edgewell Personal Care Co EPC in May acquired Harry's for $1.37 billion to complement its portfolio of shaving items. The negative investor reaction gives investors an opportunity to capitalize in the coming quarters, according to SunTrust Robinson Humphrey.

The Analyst

SunTrus's William Chappell, Jr. upgraded Edgewell Personal Care from Hold to Buy with a price target lifted from $35 to $40.

The Thesis

Edgewell's acquisition announcement prompted a one-day selloff of 16% in the stock and is now down more than 30%, Chappell wrote in the note. However, the combination "isn't as crazy as it looks" as Edgewell needed to make a move to fix its "broken" wet shave business. In fact, part of Edgewell's market share losses since 2016 was at the expense of Harry's.

Chappell said Harry's doesn't offer a substantially superior product or a significantly lower price point. The company does have a much better marketing and distribution plan, especially compared to Edgewell's core Schick brand which is nearly a full century old.

In fact, no marketing refresh at Edgewell would ever regain lost market share so it needed Harry's business to "jump start" its business. As such, the potential for market share, profitability, and free cash flow improvements more than offsets any near-term concerns.

Price Action

Shares of Edgewell Personal Care were trading higher by 4.5% at $29.26 Monday afternoon.

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