Decisive Overhaul And Global Expansion Poised To Bolster Market Position And Shareholder Returns

Key Takeaways

• Leadership changes and strategic focus on productivity could enhance Edgewell's financial performance by improving efficiency and profitability.
  
• Investment in consumer-centric innovation and international market expansion are key strategies for increasing market share and diversifying revenue streams.
  
• Operational and leadership challenges, along with reliance on volatile market channels, could hinder Edgewell's financial growth and market share.

Catalysts

Manufactures and markets personal care products worldwide.

• Leadership and organizational structure changes aim to enhance Edgewell's operational execution and decision-making, potentially improving productivity and efficiency, which could lead to better financial performance and affect net margins positively.
  
• Focused efforts to accelerate gross margin accretion through productivity initiatives and strategic revenue management efforts could increase profitability and affect net margins in a positive manner.
  
• Investment in consumer-centric innovation as a central strategy for differentiation and growth could lead to increased market share and sales growth, impacting revenue positively.
  
• Enhanced international business focus with continued growth in international markets due to effective execution of strategy could lead to diversified and increased revenue streams.
  
• Commitment to returning value to shareholders through disciplined capital allocation and returning cash to shareholders might boost investor confidence and could contribute to earnings per share growth.

Assumptions

• Analysts are assuming Edgewell Personal Care's revenue will grow by 1.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.3% today to 7.5% in 3 years time.
• Analysts expect earnings to reach $177.2 million (and earnings per share of $3.51) by about October 2027, up from $119.7 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.4x on those 2027 earnings, up from 14.6x today. This future PE is lower than the current PE for the US Personal Products industry at 26.8x.
• Analysts expect the number of shares outstanding to grow by 0.76% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 8.08%, as per the Simply Wall St company report.

Risks

• The macroeconomic challenges and global business disruptions could negatively influence consumer spending and impact Edgewell's revenue growth.
  
• The company's heavy reliance on specific market channels facing declining traffic and competitive pressures, especially in the U.S. drug channels and Women's Shave and Fem Care categories, could risk sales performance, potentially affecting revenue and market share.
  
• Operational challenges in maximizing manufacturing and supply chain efficiency, such as supply challenges in the shave preps business and challenges during new product rollouts, might limit gross margin improvements and overall profitability.
  
• Increased promotional activity, as indicated by heightened levels in the Wet Shave and Fem Care categories, may pressure gross margins if price increases cannot offset these costs.
  
• Potential execution risks in leadership transitions and organizational changes might disrupt short-term performance and delay the strategic initiatives aimed at accelerating sales growth and operational efficiency, impacting net margins and earnings.

Valuation

• The analysts have a consensus price target of $43.25 for Edgewell Personal Care 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 $53.0, and the most bearish reporting a price target of just $35.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $2.4 billion, earnings will come to $177.2 million, and it would be trading on a PE ratio of 15.4x, assuming you use a discount rate of 8.1%.
• Given the current share price of $35.48, the analyst's price target of $43.25 is 18.0% 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.