Wunderlich Reiterates Buy On Hain Celestial Despite 'Setback'; Says Board May Mull Sale Of Co.

Justification For Buy Rating

The brokerage said Hain's delayed fourth-quarter release and 10-K filing — due to a review of internal controls around previous revenue recognition practices — along with indications that it will miss previous fourth-quarter guidance will provide investors with an attractive buying opportunity.

"The financial reporting issues do not diminish the value of HAIN's portfolio of brands and could possibly accelerate its acquisition potential," analyst Mitchell Pinheiro wrote in a note.

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Moreover, the analyst expects the board to consider a sale of the company as the company's size and complexity of the business exceeds the current management team's capabilities.

"We believe the stock is worth at least $70/share in an acquisition (~18x EBITDA)," Pinheiro noted.

In addition, the recent accounting woes create management credibility issues on top of previous concerns "that this business is becoming more complex as the company extends deeper into the conventional channel."

"This is another valid reason why we expect the board to consider selling the company as the timeline to re-tool management, the supply chain, and its SKU portfolio will not match investors' patience," Pinheiro highlighted.

Fundamentals

On the fundamentals front, Hain said it will not achieve its previously stated guidance for FY16. The analyst's fourth-quarter EPS estimate stands at $0.61 and full-year estimate at $2.

"We suspect the earnings miss will be revenue-related as recent IRI trends have been uninspiring and FX will be a significant headwind (U.K. is 27 percent of FY16 revenue)," Pinheiro added.

At time of writing, shares of Hain Celestial plunged 26.18 percent to $39.42. Pinheiro has a price target of $52 on the stock.

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