Hain Celestial Group | Executive Summary
Kushal Chukkpalli, Kevin Farshchi, Hua Haixing
December 2, 2014
Company Background
Headquartered in Lake Success, New York, Hain Celestial Group is mid-cap company founded in 1993 with a market capitalization of $5.7 billion and operates in more than 3 continents. It has four business segments: Grocery, Snacks, Tea and Personal care. Hain Celestial belongs to the consumer staples sector. All the products offered by the firm fall under the organic products category.
Industry Overview
The industry is on the rise and is also expected to continue this trend in the near future. The growth drivers are increase in purchasing power and the distribution network of the company around the world. The industry is highly correlated with the macroeconomic prospects and therefore the global economy as a whole. Specific business risks include consumer preferences, availability of organic ingredients and loss of distributors.
Compared to its peers, Hain Celestial is the second biggest player in the organic products industry. In the past 3 years, the prices of Hain Celestial have been increasing, along with its peers, due to the large growth in the industry itself. In the aftermath of the financial crisis, Hain Celestial has been able to capture the increasing trend in the organic food industry and has been growing substantially due to its aggressive acquisition and divestiture policy. As the company expands its business, the markets are poised to grow as more and more consumer are transitioning towards organic and gluten free products.
A business strategy that expands the product diversity year after year and maintaining a stable growth rate is what makes Hain Celestial a unique and worthwhile opportunity.
Economic Moat
Not only the profitability and efficiency ratios suggest that Hain Celstial is a fundamentally strong and growing business, the firm’s revenues and earnings have been growing. Last year, the operating margin from operations was approximately 11.20%. Moreover, 60%of the net sales came from
North America, 30% from U.K, and 10% from the rest of the world. Also the firm was able to introduce
200 new products last year with the acquisition of Hain Pure Protein Corporation and also by entering into a joint venture with Hutchinson China Meditech Ltd.
Overall Hain Celestial has diversified its business portfolio by adding new products through mergers and acquisitions and also with strong distribution system. Its risks mainly are economic risks, change in consumer preferences and also the seasonality behavior exhibited by few product lines. In the future, growth opportunities may arise through acquisition of small and growing companies and entering emerging markets.
Recommendation
Considering the calculated implied share price for Hain Celestial is $93 and the current price of the stock is $114.33, we believe that the stock is overvalued. We plan to revise our decision to buy and will place this stock on the watch list. Still, we believe that the announcement of a 2 for 1 stock split on
November 25, 2014 will service to provide more liquidity and increase trading. We hope that in the future, the stock will trade closer to fair value. Comparables gave us a price of $122.50, which suggests that these natural food stocks are trading at very high multiples, especially high forward P/E. We do not believe that the growth that is implied by P/E is worth the purchase of the stock however. If we blend these two modes of valuation, our team decided on a price target of $93. Although our analysis did not result in a buy decision, we believe that Hain Celestial is an attractive company to have in our portfolio because of its extremely diversified product base, a strong growth prospect and also its aggressive and practical business strategy. We plan to review this holding in the near future.