Editor’s note: This column is part of our Best Stocks for 2017 contest. Hilary Kramer’s pick for the contest is Newell Brands Inc (NYSE:NWL).
Before the next quarter starts, now is a great time to check in on Newell Brands Inc (NYSE:NWL), my pick for InvestorPlace.com’s Best Stock for 2017 contest, to see how it’s done since my last update and what it has going ahead for it. Let’s get to it!
It has actually been a rough road for NWL stock following the hurricanes, but the clouds currently obscuring the chart should lift soon. It’s a classic Wall Street dynamic that I’ve seen play out again and again: sentiment is really just the market’s version of “weather,” but the fundamentals ultimately guide the game.
NWL was in good shape before the storms hit: sales of Rubbermaid and FoodSaver containers, Sharpie pens and other plastic products were healthy, while management’s agile “mergers, acquisitions and divestments” strategy ensured that the brand footprint remained vibrant in the sometimes-stagnant world of consumer products conglomerates. We were beating the market and booking 23 cents per quarter in dividends as a cash bonus.
But Hurricane Irma knocked 70% of the company’s resin suppliers offline, effectively forcing it to default on its delivery commitments for over a week.
Without resin, it’s mighty hard to make new food containers. NWL found replacement sources on the fly, but keeping its factories operating came at a steep cost — management estimated at the time that Irma ultimately cut full-year 2017 profit by 10 cents per share. When Wall Street caught that headline, the stock shifted into reverse and has remained under pressure since.
Waiting for the Mood to Shift in Newell Brands
I view the selling as overdone. The chemical plants NWL works with were temporarily shut down by the weather but not destroyed. Emergency pricing the company had to accept doesn’t represent a permanent drag on the margins, and if anything, it’s already more or less back to business as usual.
Wall Street grudgingly agrees: while earnings models for the current quarter have taken a hit, most analysts expect next quarter to return to trend with minimal pain. All in all, EPS consensus here for the full 12 months is only 12 cents below where it was early in the summer.
Early this summer, investors were willing to bid $16.77 for every $1 in forward earnings they expected from NWL. On that multiple, this stock managed to trade close to $54 then. So we know for a fact that’s what the market will pay for this company when the skies are clear — and as time passes and management keeps shuffling the product line, I think $54 starts looking more like a floor than a long-term ceiling.
Once again, Wall Street agrees. Even after the kneejerk downgrades, consensus indicates that NWL will one day be at least a $55-$56 stock again.
Of course, the mood has to brighten to get us there first. From a technical perspective, this chart is obviously oversold now and indicates a bounce if not a full-fledged recovery. And remember, we also have one more earnings report (scheduled to be released on Oct. 27), and positive numbers could be just what Wall Street needs to warm up to the stock and get it firing on all cylinders again.
Hilary Kramer is the editor of GameChangers, Breakout Stocks, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.