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The Price Is Going Up On Prestige Brands - Value Investing 101

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QUEENS, N.Y. - Rezul -- The Top Line

The stock we want to talk about today is Prestige Consumer Healthcare (PBH). The company is listed under pharmaceuticals with a focus on ENT and EyeCare. Their most intriguing product is Dramamine, which is number 1 brand in the OTC-motion sickness category in the U.S.. Dramamine had an estimated market share of 32% back in 2010 when Prestige Brands purchased them for $76 million.

Here are a few more fundamental facts that I picked up during my research:
  1. July 1, TheraTears acquisition will add annual revenue of about $60 million, and adds to their MOAT in the EyeCare business.
  2. Deal also expands Prestige's catalog in the VMS and Cough & Cold categories
  3. Has a hand in Feminine care with Summers Eve and Monistat.
  4. Also producers of Chloraseptic and Ludens
  5. Double digit growth in the top and bottom line, with high free cash flow yield.
  6. Price to sales of 2.86, plus cost of goods sold below 43%
  7. Double digit equity growth means the company is stockpiling cash and investing earnings into the stock as they should.
  8. They pass the acid test, cash and receivables are capable of handling short term liabilities.

Risk Management

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The stock is currently undervalued by my view, but there are still risks to be aware of. There could be some more downside for the next week or two depending on market conditions. Prestige Brands is already overbought on the monthly chart and has a doji followed by a bearish engulfing candle on the weekly chart.

Second point of support is $56.74. The 1-month high for Prestige Brands is $63.83. The company has come down quite a bit but I believe their competitive advantage will keep the stock from falling too far.

The Bottom Line

I would definitely say this particular company was an impressive find. It fits the needed criteria for investing in the healthcare sector with a low price to sales and decent revenue growth trailing 12 months. Another thing that stands out about them is their line of products and clear advantage in eye care. If that's not enough for you how about the fact that institutions own 99.52% of the stock.

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My initial valuation for the company was $63.03, but since the acquisition of TheraTears that valuation has changed. I redid my DCF valuation of the free cash flows and factored in the $60 million change in revenue from the acquisition and I believe my valuation is still on the modest. My average target increased increased by 17.6% to $74.10 through the end 2022. I think this pullback is the perfect time to take some of these shares away from the institutions.

Follow the D'ron Forbes on Muck Rack to learn more. https://muckrack.com/dron-forbes

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Source: Division One Finance
Filed Under: Financial

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