International Gains In Wet Shave, Sun Care, And Grooming Will Strengthen Future Prospects

Key Takeaways

• Strategic investments and operational efficiencies have led to strong margin improvements, potentially boosting net margins and earnings growth.
  
• Successful international market growth and innovation transformation promise increased revenue and market share, particularly in Grooming with brands like Billie and Cremo.
  
• Competitive pressure, currency exchange issues, and rising costs challenge Edgewell's margins, with execution risk in brand transitions adding to revenue vulnerabilities.

Catalysts

Manufactures and markets personal care products worldwide.

• Continued growth in international markets with significant gains in categories like Wet Shave, Sun Care, and Grooming indicates potential for increased revenue and market share.
  
• The transformation of the innovation platform to a more consumer-centric and locally driven model is expected to enhance product development, potentially boosting earnings and revenue with successful product launches.
  
• Strategic investments in operational efficiencies and productivity savings have resulted in strong gross margin improvements, which could enhance net margins and earnings.
  
• Enhancements in organizational and leadership structures, particularly in North America, are anticipated to improve market execution and partnerships with retailers, potentially increasing revenue through improved customer engagement and market positioning.
  
• The successful growth trajectory of brands such as Billie and Cremo, with strong market acceptance and share gains, provides a catalyst for revenue and earnings growth in the Grooming segment.

Edgewell Personal Care Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Edgewell Personal Care's revenue will grow by 1.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.1% today to 8.3% in 3 years time.
• Analysts expect earnings to reach $193.9 million (and earnings per share of $3.59) by about April 2028, up from $91.7 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 10.6x on those 2028 earnings, down from 16.2x today. This future PE is lower than the current PE for the US Personal Products industry at 21.3x.
• Analysts expect the number of shares outstanding to decline by 2.68% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.93%, as per the Simply Wall St company report.

Edgewell Personal Care Future Earnings Per Share Growth

Risks

• The U.S. Wet Shave and Fem Care categories remain highly competitive and promotional, presenting risks to revenue and margins as the company may need to increase promotional spending to maintain market share.
  
• The strengthening of the U.S. dollar poses a risk to adjusted gross margins, as foreign exchange headwinds have led to decreased earnings guidance, which could negatively impact net earnings.
  
• The decline in organic net sales in North America, particularly in Fem Care and Wet Shave segments, highlights a vulnerability in revenue generation that could persist if consumer trends do not improve.
  
• The company's reliance on successful brand transitions (e.g., consolidating Stayfree to Carefree in Fem Care) carries execution risk, which could adversely impact revenue if consumer conversion is slower than anticipated.
  
• Increased labor and commodity costs, alongside unresolved inflationary pressures, pose risks to net margins if these costs cannot be effectively offset through productivity savings or pricing adjustments.

Valuation

• The analysts have a consensus price target of $36.0 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 $43.0, and the most bearish reporting a price target of just $28.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.3 billion, earnings will come to $193.9 million, and it would be trading on a PE ratio of 10.6x, assuming you use a discount rate of 8.9%.
• Given the current share price of $30.86, the analyst price target of $36.0 is 14.3% 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.