New Buy NWL

07 Aug 2018 14:55

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On Monday I made an unplanned purchase that was not on my watch list by buying a small position in Newell Brands (NWL) at $22.56/share and a dividend yield of 4.08%.

The reason NWL was not on my watch list is because this is not a dividend growth stock. NWL from my perspective has become an income value stock which on occasion I buy when I see the market undervaluing a company. NWL’s stock price got hammered on Monday after they missed revenue estimates with a huge miss and lowered full year EPS guidance down $2.65 to $2.85 /share. However, even with the lower guidance this places NWL’s forward P/E near 9 and their price to book value at 0.91 which means the company has crossed the line where assets are worth more than their stock price.

NWL is in the middle of a transformation, they went on a buying binge over the last 5 years and have bit off a bit more than they intended to chew. NWL has evaluated all of the brands under their roof and set forth a strategy of categories that they believe will allow them to concentrate on growth. The remaining brands that do not fall into their categories for strategic growth are being revaluated as potential divestures such as their recent sale of their sporting goods (namely the Rawlings brand).

Their strategy is fairly simple, keep businesses that have similar manufacturing processes and distribution channels and to consolidate manufacturing which will result in reducing footprint which will in turn reduces operating costs and strengthen the remaining manufacturing and logistic streams. The chart below is an excerpt from their 2018 Consumer Analysts presentation in New York that shows the brands they intend to retain and the ones being considered for divestiture.


It may take a couple of years to fully implement the strategy and until that time NWL’s stock price may go lower until their strategy begins to show EPS growth. Since I only opened a small position there is room to add additional shares and average down. I view this as a long term investment with a 3+ year time horizon and a target sell price of $42/share and in the meantime I will collect a 4% dividend.

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