Transformational Growth On The Horizon With Critical Market Moves And Innovation

Key Takeaways

• Focused expansion in U.S. shaving and fem care markets and international innovation is expected to drive revenue growth and competitiveness.
  
• Supply chain transformation and leadership changes aim to boost margins, profitability, and shareholder returns through productivity savings and efficient operations.
  
• Increased competition, reliance on weather for Sun Care, currency volatility, supply challenges, and inflation pressures threaten Edgewell's revenue stability and profit margins.

Catalysts

Manufactures and markets personal care products worldwide.

• The company plans significant emphasis on U.S. shaving and fem care markets by appointing a new leader with a strong track record, improving competitiveness, which should stabilize or grow revenue in these segments.
  
• Expansion and innovation in international markets, including growth of the global Sun Care business and Billie and Cremo brands, is anticipated to drive top-line revenue growth.
  
• Edgewell is committed to transforming its supply chain to achieve at least 200-300 basis points in productivity savings annually, improving gross margins and profitability.
  
• Leadership and organizational changes aim to streamline operations and improve decision-making, which could enhance net margins and earnings through more efficient processes.
  
• Continued cash flow generation and disciplined capital allocation are set to support greater shareholder returns, which may increase earnings per share through share repurchases.

Edgewell Personal Care Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Edgewell Personal Care's revenue will grow by 2.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.4% today to 7.1% in 3 years time.
• Analysts expect earnings to reach $170.8 million (and earnings per share of $3.78) by about November 2027, up from $98.6 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 14.1x on those 2027 earnings, down from 17.1x today. This future PE is lower than the current PE for the US Personal Products industry at 26.6x.
• Analysts expect the number of shares outstanding to decline by 2.48% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.41%, as per the Simply Wall St company report.

Edgewell Personal Care Future Earnings Per Share Growth

Risks

• Increasing competition in key categories like U.S. Shave and Fem Care may lead to revenue challenges, as these areas are seeing sluggish growth and high promotion rates.
  
• The company's reliance on weather conditions for Sun Care sales introduces variability and unpredictability to revenue, making projections more uncertain.
  
• The volatility of currency exchange rates and expected currency headwinds could impact earnings, affecting profit margins and earnings per share.
  
• Transitory supply challenges, especially in grooming, skin, and preps, pose a risk to revenue stability and could lead to missed sales opportunities.
  
• Inflation in labor and commodities continues to be a concern, potentially squeezing net margins despite productivity efforts.

Valuation

• The analysts have a consensus price target of $41.88 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 $170.8 million, and it would be trading on a PE ratio of 14.1x, assuming you use a discount rate of 8.4%.
• Given the current share price of $34.69, the analyst's price target of $41.88 is 17.2% 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.