Consumer and commercial products maker Newell Brands (NYSE: NWL)
shares have been trading below its pre-pandemic levels and underperforming the benchmark S&P 500 index (NYSEARCA: SPY)
. As a consumer products play, the market may be underpricing this stock. While the reaction to the Q2 fiscal 2020 earnings was a sell-the-news reaction, shares pulled back to a key weekly support area enabling risk-tolerant investors a value-based pandemic benefactor play. The Company has a diverse number of brands that benefit from restart and rollback scenarios. Opportunistic pullback levels are presenting themselves for nimble investors and traders looking to step into the short-term sentiment slip.
Newell Brands Q2 FY2020 Earnings Release
On July 31, 2020, Newell released its second-quarter fiscal 2020 results for the quarter ending June 2020. The Company reported earnings of $0.18 per share matching consensus analyst estimates of $0.18 per share. Revenues came in at $2.11 billion beating analyst estimates of $2.03 billion, falling (-0.3%) year-over-year (YoY). The Company could not provide forward guidance due to the uncertainty of COVID-19 effects on duration of social distancing or timing of school and office closings and overall impacts on the global economy. However, Newell does expect financial results to improve sequentially in the third and fourth-quarter fiscal 2020.
Newell Brands Conference Call Takeaways
During the conference call following the Q2 2020 release, Newell Brands CEO, Ravi Saligram commented on how April was the worst month with (-25%) sales drop at the peak of the pandemic as May started the recovery. June sales are flat to modest growth YoY. Newell is seeing broad consumption growth rates accelerate sharply in the categories of food, commercial, and application businesses. Online sales this quarter grew to 24% of sales. The Food division consisting of Rubbermaid, FoodSaver Ball, and Sistema have seen strong double-digit growth rates. The Company is planning to launch Rubbermaid Brilliance glass in September and antimicrobial product protected Rubbermaid food storage containers with major distributors in Q4. Home Fragrance fell due to stay-at-home mandates causing temporary closures of retail stores including Yankee Candle, this was further hit by supply constraints from the closure of the main factory in South Deerfield, Massachusetts.
Supply and production is ramping back up as retail outlets reopen. Core sales for Appliance and Cookware grew 6.1% from stay-at-home mandates. Supply constraints have been alleviated as the Company has reopened all plants and distribution centers. The Writing business unit is expected to be the most challenged for Q3 2020, due to the uncertainty of school and office openings. The Company ended June with $619 million in cash and completed its $500 million debt offering to zero out outstanding balances on the credit revolver and end Q2 with over $2 billion in total short-term liquidity.
Newell Brands A Bargain Opportunity
While the consumer and commercial industry is broad, the average price-to-earnings (PE) ratio for top players hovers around 20. Newell Brands currently trades at a PE of 6. This is shockingly cheap compared to peers like Proctor & Gamble (NYSE: PG) with a PE of 26 , Kimberly Clark (NYSE: KMB) with a PE of 20 and Unilever (NYSE: UN) with a PE of 20. Not to say Newell is hitting on all cylinders to compete with the top players in the industry, however, there is room to grow as for the share prices. The underlying technicals are showing key improvements that are compelling enough for investors to consider scaling in on opportunistic pullbacks provided by the earnings sell-the-news reaction.
Newell Brands Price Trajectories
Using the rifle charts on the monthly and weekly time frames provides a broader view of the landscape for NWL stock. The monthly rifle chart triggered a market structure low (MSL) buy trigger above $14.69 as the stochastic just crossed back up at the 40-band. The weekly rifle chart formed an MSL buy trigger above 13.85 with a bullish stochastic mini pup with 5-period moving average (MA) support at $16.34. The upside trajectory on the weekly stochastic mini pup points to the upper Bollinger Bands (BBs) at $19. The monthly mini pups have upper BBs near the $22.25 Fibonacci (fib) level. The recent post-earnings selling sets up opportunistic pullback entry levels at the $15.49 fib, $14.69 weekly 15-pd MA/monthly MSL, $13.85 weekly MSL and the $13.14 super fib. fib and $68.43 fib and monthly 5-period MA range. While the weekly stochastic are at the 80-band, it’s prudent to let the daily stochastic cross back up before pulling the trigger.
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