Helen of Troy Makes Value Screen With Kaz Buyout (HELE, PG, HON)

Helen of Troy Limited (NASDAQ: HELE) is an unknown stock to many investors, but that appears to be changing after what most investors would skim over as news too small to matter.  A merger announcement with it being the acquirer appears to be enough that this gets the stock on the map for those making value screens and those looking for value in consumer products. The personal care and consumer products company announced a definitive merger agreement to acquire the business of Kaz, Inc., for $260 million in cash.  It sounds like nothing on the surface.  When you look under the surface here, this just put Helen of Troy on the map as it is scoring some significant brands here.  This deal further adds The Procter & Gamble Company (NYSE: PG), ties in with Honeywell International Inc. (NYSE: HON), and adds to a large brand portfolio.

While the deal is subject to certain closing working capital and other adjustments as well as regulatory approval, the target date for closure is December 31, 2010. How many companies rally when they are the acquiring company of a private company? The one issue that may prevent Helen of Troy from coming up in stock screens for value, despite its small market capitalization, is that it has not paid dividends.

Kaz is a Massachusetts-based health care and home environment consumer solutions company.  Here is why this gets Helen of Troy on the map.  It markets its products to leading retailers under a variety of brand names:

• Vicks® and Braun® under license from The Procter & Gamble Company;
• Honeywell® under license from Honeywell;
• and Stinger®, Softheat® and Kaz®, owned by Kaz, Inc.

The company’s product categories listed in its release include “vaporizers, humidifiers, digital, infrared and non-invasive thermometers, blood pressure monitors, hot/cold health care therapy, air purifiers, seasonal humidifiers, heaters, fans, and dehumidifiers, and lawn and garden products.”

Sales for the next twelve months ending December 31, 2011 are expected to exceed $400 million.  The release also shows that the combined companies will have annual net sales of more than $1.1 billion in fiscal 2012.  So why does this deal matter so much?  Currently, the few estimates that exist from Thomson Reuters are projected at $717.26 million for fiscal FEB-2011 and $749.24 million for FEB-2012.  This now throws the company far enough $1 billion in annual consumer product sales.  That in turn should bring on more analyst coverage and more interest as the company will grow so much from this.

We do want to warn that there are only a handful of estimates, and that creates less of a consensus than consensus of widely followed companies.  Going past the sale, the earnings multiple here is very low at close to 10-times earnings.  For FEB-2011, the estimate is $2.74 EPS.  That consensus is $2.96 for FEB-2012.  If you average those two out for a forward earnings multiple, the $2.85 generates a forward earnings multiple of less than 10-times forward earnings.  The acquisition is expected to be accretive to Helen of Troy’s earnings per share in fiscal year ending February 29, 2012.  In short, the ‘consensus estimate’ is even lower than reality.

Helen of Troy noted that it will finance the deal through its working capital and through debt financing committed by Bank of America.  There is something else to consider for 2011 and beyond.  Those forward multiples are after an 18% gain on the day.  Shares are up 18.3% at $27.85 against a 52-week range of $20.98 to $28.98.  Wedbush just downgraded Helen of Troy to an “Underperform” rating on December 3.  Whoops!

This was already a small cap value stock for most investment screens.  Now it is that much more on the map.

JON C. OGG

Here is what Helen of Troy showws as its current product portfolio:

Helen of Troy’s owned brands including Infusium 23®, Brut®, Pro Beauty Tools®, Pert Plus®, Sure®, Vitalis®, Final Net®, Ammens®, Condition® 3-in-1, SkinMilk®, Dazey®, Caruso®, Karina®, DCNL®, Nandi®,  Isobel® and Ogilvie®.

Products are also sold under licensed trademarks including:

• Vidal Sassoon®, licensed from The Procter & Gamble Company,
• Revlon®, licensed from Revlon Consumer Products Corporation,
• Dr. Scholl’s®, licensed from Schering-Plough HealthCare Products, Inc.,
• Sunbeam®, Health at Home® and Health o meter® licensed from Sunbeam Products, Inc.,
• Sea Breeze®, licensed from Shiseido Company Ltd.,
• Vitapointe®, licensed from Sara Lee Household and Body Care UK Limited,
• Toni & Guy® outside of the Americas, licensed from Mascolo Limited,
• Bed Head® and  TIGI® in the Americas licensed from MBL/TIGI Products, LP, and Toni&Guy® in the Americas licensed from MBL/TONI&GUY Products, LP.

Helen of Troy markets hair and beauty care products under the Helen of Troy®, Hot Tools®, Hot Spa®, Salon Edition®, Gallery Series®, Wigo®, Fusion Tools®,  Belson®, Belson Pro®, Gold ‘N Hot®, Curlmaster®, Profiles®, Comare®, Mega Hot®, and Shear Technology® owned brands to the professional beauty salon industry.