Helen Of Troy: The Stock That Launched A Bank Of America Underperform Rating

Bank of America Merrill Lynch
coverage of
Helen of Troy Limited
with an Underperform rating and a $87 price objective. The negative opinion was based primarily on near-term growth challenges facing the
Hydro Flask
business it recently acquired.

At the time of writing, shares of Helen of Troy were sliding 5.63 percent to $91.40.

Delving on the problem with the Hydro Flask business, analysts Christopher Carey and Olivia Tong said sell-through rates appear to be slowing significantly. This is despite the business boasting of the fastest growth and highest margins (see Tong's track record here).

The analysts noted that Hydro Flask accounted for 7 percent of the company's sales in 2017 and generated $1 per share in earnings, which accounted for all of the earnings per share growth for the year. Additionally, the analysts noted that operating margins of the business was about two times of Helen of Troy's fleet average.

See also: 5 Sectors Millennials Prefer To Consumer Goods, And The Stocks That Prove It

For 2018, BofA Merrill Lynch expects sales at the low-end or below guidance in each segment and earnings per share of $6.65 compared to the guidance of $6.50-$6.90. Also, the firm expects 2019 earnings per share to be flat year over year, 7 basis points below the company's long-term target.

The firm is of the view that the slowdown in Hydro Flask cannot be offset by Helen of Troy's other segments. Among the positives the firm listed were the higher proportion of e-commerce sales (30 percent of sales) versus 13 percent for peers, distribution opportunity in the U.S. and international, solid free cash flow and sub-2 times leverage.

Also, the firm noted that the company is investing $28 million or 90 cents per share in earnings in innovation and demand building in 2018. However, the firm said these are not simply not enough to offset N-T risks, which are underappreciated.

Posted In: Bank of America Merrill Lynch - Christopher Carey and Olivia TongAnalyst ColorShort IdeasPrice TargetInitiationAnalyst RatingsTrading Ideas