The Tennessee Facility And Project Pegasus Will Improve Future Performance

Key Takeaways

• Operational efficiency and cost savings at the new Tennessee facility and Project Pegasus are anticipated to improve margins and earnings.
  
• Strategic moves, including the acquisition of Olive & June, aim to boost revenue and market share through enhanced distribution and data-driven marketing.
  
• Reliance on the wellness segment and major retail partners, combined with integration challenges, pose risks to sales growth and net margins.

Catalysts

Provides various consumer products in the United States, Canada, Europe, the Middle East, Africa, the Asia Pacific, and Latin America.

• The newly operational Tennessee distribution facility is running efficiently, expected to provide labor efficiencies and cost savings, likely improving net margins and earnings.
  
• Project Pegasus is on track, reducing product and commodity costs, which will positively impact gross profit margins and provide investment opportunities in the brand.
  
• The North American Regional Market Organization (NA RMO) is making strides in distribution, with an 11% year-over-year increase in U.S. weighted distribution, which is anticipated to boost future revenue.
  
• The acquisition of Olive & June is expected to be immediately accretive and offers significant growth potential, which can enhance revenue and boost earnings.
  
• Investments in data and analytics are anticipated to optimize marketing ROI and drive market share growth, which should improve revenue and potentially net margins.

Helen of Troy Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Helen of Troy's revenue will grow by 1.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.4% today to 8.2% in 3 years time.
• Analysts expect earnings to reach $166.2 million (and earnings per share of $6.75) by about January 2028, up from $141.8 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $206.2 million in earnings, and the most bearish expecting $113.9 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.7x on those 2028 earnings, up from 9.6x today. This future PE is greater than the current PE for the US Consumer Durables industry at 10.3x.
• Analysts expect the number of shares outstanding to grow by 2.54% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.32%, as per the Simply Wall St company report.

Helen of Troy Future Earnings Per Share Growth

Risks

• The company's reliance on the wellness segment, which is heavily dependent on seasonal factors such as the global illness incidence, poses a risk as unpredictable and weak seasons (like the current 8-year low) adversely impact sales and revenue.
  
• Higher inventory levels due to a weaker-than-anticipated illness season and strategic inventory builds could lead to increased carrying costs and affect net margins.
  
• The bifurcation in consumer spending, with lower-income households prioritizing necessities over discretionary goods, can lead to a decline in revenues, particularly from the beauty and wellness segments.
  
• The potential bankruptcy or financial struggles of major retail partners, such as The Container Store, could reduce distribution channels and negatively impact sales and revenue growth.
  
• Challenges and delays in the integration and operationalization of acquisitions, like Olive & June, and potential issues relocating production due to tariff changes, could result in unforeseen costs and impact net margins and earnings.

Valuation

• The analysts have a consensus price target of $88.67 for Helen of Troy based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $105.0, and the most bearish reporting a price target of just $69.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.0 billion, earnings will come to $166.2 million, and it would be trading on a PE ratio of 16.7x, assuming you use a discount rate of 9.3%.
  
• Given the current share price of $59.29, the analyst's price target of $88.67 is 33.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.