Two Prestige Brands insiders bought half a million worth of stock on Monday. It’s worth taking a closer look at the company while shares have lost nearly 20% of their value over the last month.
Insider Buying: Prestige Brands
A number of insiders have been buying shares of Prestige Brands (NYSE: PBH) according to recent form 4 filings with the SEC. These notable insiders include Ronald Lombardi (Chairman, President & CEO) and Gary Costley (Lead Director), as shown in the table below.
|Insider Trading||Relationship||Date||#Shares||Value ($)|
|Gary Costley||Director||Feb 05||7,500||$266,025|
|Ronald Lombardi||Chief Executive Officer||Feb 05||7,000||$251,580|
Lombardi (CEO) filed his Form 4 this morning which is what propelled me to take a closer look at the company’s insider activity.
Potential Reasons For Insider Buying
Prestige Brands manufactures and distributes over-the-counter (OTC) healthcare and household cleaning products worldwide. The company’s OTC healthcare products include Clear Eyes eye care products, Compound W wart removers, Dramamine, and Luden’s throat drops. The company also offers household cleaning products such as the Spic and Span brand. It primarily offers its products to mass merchandisers, drug stores, and supermarkets. Prestige Brands was founded in 1996 and is headquartered in Tarrytown, New York.
Last Thursday Prestige Brands reported its Q3’18 financial results that sent the stock tumbling, although unclear why. Revenue increased 24.8% to $270.6 million and slightly beat Wall Street’s expectations by $0.5 million. The market’s overreaction is likely one reason that Lombardi and Costley picked up shares.
Another reason is the company’s low trading multiples in comparison to comparables Church & Dwight Company (NYSE: CHD), Taro Pharmaceutical (NYSE: TARO), Impax Laboratories (NasdaqGS: IPXL) and Johnson & Johnson (NYSE: JNJ). Analyzing Prestige Brand’s valuation metrics and ratios relative to its peer group offers insight into why insiders may be buying their shares.
A company’s projected 5-year EBITDA CAGR is the average annual growth rate of EBITDA over a five year period. It’s calculated as follows:
5yr CAGR = [ EBITDA FY+5 / EBITDA FY ] ^ (1/5 years) - 1.
The chart below plots the five year EBITDA compounded annual growth rate for Prestige Brands and its peers.
The company’s projected 5-year EBITDA CAGR of 11.9% is above all of its selected comparable public companies: CHD (6.4%), TARO (-6.7%) and JNJ (8.8%). Note that IPXL is not meaningful due to negative earnings.
Companies that are expected to grow at a faster rate relative to their peers typically trade at higher valuation multiples. But this is not currently the case for Prestige Brands as illustrated below.
The company’s Forward EBITDA multiple of 11.1x trades only above TARO (5.5x) and is below CHD (15.4x), IPXL (13.6x) and JNJ (15.0x).
Prestige Brand’s Stock Price and Valuation
The company’s shares last traded at $38.76 as of Monday, down -35.8% over the last year. While the stock has lost significant value, the recent insider transactions could signal a promising road ahead for shareholders.
In addition, finbox.io’s average fair value estimate of $46.35 implies 19.6% upside and is calculated from 6 valuation models as shown in the table below. Each analysis uses consensus Wall Street estimates for the projections when available.
|Analysis||Model Fair Value||Upside (Downside)|
|10-yr DCF Revenue Exit||$57.43||48.2%|
|5-yr DCF Revenue Exit||$51.31||32.4%|
|Peer Revenue Multiples||$39.29||1.4%|
|Peer EBITDA Multiples||$48.92||26.2%|
|Peer P/E Multiples||$48.30||24.6%|
|Earnings Power Value||$32.84||-15.3%|
How Should You Interpret this?
While executives are always happy to tell you all the reasons why their stock is a buy, their actions can tell a different story about the company’s future prospects. A trend of buying activity may indicate that insiders think the stock is going up over the upcoming time period, and are trying to buy before the price rises.
However, keep in mind that insider activity is only one aspect of stock research and that there are other important items to consider. I recommend you continue to research Prestige Brands to get a more comprehensive view of the company’s fundamentals.
Author: Matt Hogan
Expertise: Valuation, financial statement analysis
Matt Hogan is a co-founder of finbox.io. His expertise is in investment decision making. Prior to finbox.io, Matt worked for an investment banking group providing fairness opinions in connection to stock acquisitions. He spent much of his time building valuation models to help clients determine an asset’s fair value. He believes that these same valuation models should be used by all investors before buying or selling a stock.
Matt can be reached at firstname.lastname@example.org.
As of this writing, I did not hold a position in any of the aforementioned securities and this is not a buy or sell recommendation on any security mentioned.