Despite its imposing moniker, Prestige Brands Holdings (NYSE:PBH) is actually a pretty humble business. It produces and markets far-from-glamorous household cleaning, personal care and healthcare products, primarily in the United States and Canada.
If you take a walk through your local CVS Caremark (NYSE:CVS) drug store or Dollar Tree (Nasdaq:DLTR), you are likely to notice some of its consumer staples, such as Chore Boy scrubbing pads, Compound W wart removers, and Denorex medicated dandruff shampoos.
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Slow and Steady
Although such products typically do not gather much attention, the financial results they produce should certainly catch the eye of bargain-hunting value investors. Despite troubling economic conditions in the past several years, Prestige Brand's sales revenues have not faltered materially, which is a testament to the resilience of its boring, but essential, product mix.
For its year ended March 31, 2010, the company recently reported top-line sales of $302 million, down only slightly from the $303.1 million it hauled in during its 2009 fiscal year. This is impressive performance for a company operating in an industry where many competitors have seen top-line sales declines. For example, Procter & Gamble (NYSE:PG) suffered a 5.4% year-over-year decline in its total sales in its most-recently completed fiscal year.
Cash Flow Anything But Humble
Digging beyond the surface-level sales, investors should be impressed by the consistently strong cash flow Prestige Brands has generated year after year. Since its 2008 fiscal year, the company's operating cash flow has increased from $45 million to $59.4 million in its recently reported 2010 full-year financials.
With consistently minimal capital expenditures of less than $1 million per year, virtually all of its annual operating cash flow is translated into free cash flow for shareholders. The stock currently has just over 50 million shares outstanding, which means for its 2010 fiscal year the company generated about $1.16 of free cash flow per share.
Far From A Prestigious Price
Despite these obvious strengths, the stock currently trades in the $7.50 range, which means its $1.16 of free cash flow is priced at a yield of over 15%. At that valuation, even if Prestige Brands is able to generate even half of its 2010 free cash flow per share, it will still be generating almost 8% free cash flow yield annually.
That should provide somewhat of a downside limit on this stock's price, but in addition, it is also already rather cheap compared to its peers. Prestige Brands current trailing P/E ratio of 11.8 is significantly lower than that of Clorox (NYSE:CLX) at 15.3, Procter and Gamble at 14.6, and even Johnson and Johnson (NYSE:JNJ) at 12.4.
The Bottom Line
While there is almost nothing prestigious about most of Prestige Brands products, its financial performance certainly warrants admiration from investors and competitors alike. The company's sales have remained stable during challenging economic conditions and it continues to generate excellent free cash flow. Given its low valuation relative to its free cash flow per share and to that of its peers, the company appears undervalued at the moment and could end up as a distinguished holding for investors who choose to add it to their portfolios. (For more, see 3 Secrets Of Successful Companies.)
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