About Newell Brands
If you are walking in or near an elementary school, a high school or your town’s major university, you’re likely surrounded by Newell Brands’ brands.
The company is a nationwide manufacturer and distributor based in Atlanta, Georgia and one of those companies that we hardly hear about from the pundits. Newell Brands (NASDAQ: NWL) has a few brands under its belt.
Some of their more notable subsidiaries include Rubbermaid, Graco, X-ACTO, FoodSaver, Crock-Pot, Elmer’s (glue), EXPO, Sharpie, Paper Mate, Coleman, Yankee Candle, and many more.
At MacroHint, we like companies with lots of brand power.
These are all products that you have likely been around or used in the past. For instance, Rubbermaid makes trash bins, wet floor signs, and food storage containers. If you’ve been in any sort of in-person classroom setting, chances are you’ve used an EXPO marker or Sharpie, or maybe some Elmer’s glue if you’re the creative type.
Unfortunately, I am not! But I still have used Elmer’s at some point when I was a lot younger and not looking at Newell Brands’ balance sheet.
I was a lot less cool back then.
Nevertheless, Newell holds a relatively large, diversified portfolio of relatively low-cost, high value everyday items and products.
Although the brand power is strong with this one, let’s take a look and see if the financials are as compelling.
Newell Brands stock financials
Newell (as of this writing) is trading at a relatively inexpensive $21.48 per share. But forget about the price of the stock itself; is there enough value (or any at all for that matter) to back up every penny of its current stock price?
You bet.
Newell’s current price-to-earnings (P/E) ratio is 13.03 (above 20 is generally said to be overvalued while below 20 is generally accepted as undervalued) and the company offers shareholders a 4.2% annual dividend yield ($.92), all while maintaining a fairly strong balance sheet.
Specifically, Newell currently oversees almost $14.2 billion in total assets and just above $10 billion in total liabilities.
While the company’s total assets and liabilities are a little closer than we initially expected, Newell, being a major conglomerate, is likely in the habit of frequently acquiring companies (by means of debt) and through achieving steady income and positive cash flows (over time) through their brands, they should have little to no problem paying off their debt in the long run.
From a valuation perspective, there isn’t much to complain about.
Relative to its respective industry, Newell’s P/E and price-to-earnings growth (PEG) ratios are slightly above average, however, we don’t see this is a major concern or threat to the company’s share price. Also, compared to the market as a whole, the stock is objectively undervalued.
Onto Newell’s income statement, the company’s total revenue has remained fairly stable throughout the past five years, including 2019 and 2020. In fact, our team finds it remarkable that the company’s total revenue barely budged at all during these times of turbulence caused by prevalent supply chain issues, COVID-19 and its variants and the associated rising costs of these economic disturbances.
This speaks to the “essentialness” of Newell and the products it sells.
As predicted, as we move onto the company’s cash flow statement, some years their net income is positive and some years their net income is negative.
This fluctuation isn’t because Newell is a poorly managed company or not good at managing its resources. In fact, it’s likely quite the opposite.
In those years when net income was negative, they were likely spending money on buying new brands, engaging in shareholder buybacks or other investor-friendly activities. This is a likely scenario since they seem to be in the process of a major $275 million stock buyback.
As a prospective investor in the company, I would be absolutely fine with Newell reinvesting in the company, its brands and ultimately its shareholders.
Diving deeper into the company’s margin metrics, Newell’s relative pricing power is evident.
Newell Brands stock fundamentals
Specifically, their annual gross profit margin is 30.92% while the industry sits at 27.33%. A company the size of Newell will likely continue increasing its profitability through its various streams of revenue (i.e., businesses it operates under its corporate umbrella).
Finally, it should be noted that the company’s annual return(s) on equity, assets and investment are all lower than that of the industry average. We’re not exactly sure what could be causing this other than the company already being so large to the point that it’s rather difficult to achieve returns on these metrics.
This definitely isn’t a highlight, but it could be a somewhat solemn reality of owning stock in a conglomerate home to many household brands.
However, from a slightly less technical perspective we enjoy the fact that Newell Brands’ subsidiaries are seemingly well-hedged against major swings in the greater overall economy.
It should be understood that a considerable segment of their brands are recession proof by nature; this is likely one of our favorite aspects of the company.
For example, the world will always need trash bins, “caution” wet floor signs, writing and school materials, outdoor recreational gear, and the ever so vital Crock-Pot.
Thus, with steady demand comes steady revenues and with steady revenues comes more opportunity for Newell to put profits back into their brands and pay down their debt over the long run. While we’re not crazy about the company’s returns, their revenues in recent history have remained resilient and shareholders can likely sleep well at night knowing they’re invested in not one or two brands but multiple, relatively recession-proof companies.
Should you buy Newell Brands stock?
From a strict historical stock price movement perspective, Newell hasn’t been very exciting.
In fact, if you purchased a share of Newell Brands five years ago, you would be down nearly $4.00 (around $25 to $21). Newell doesn’t seem to be a growth or shareholder profit machine, however it is a value preserver.
From our perspective, the stock is one of the safer and less expensive conglomerate corporations that you and I can invest in. Given the company’s relatively low price-to-earnings ratio (implying the company’s current share price is undervalued), strong household brands, recessionary-proof nature of their products and future growth they are likely to incur through acquisitions, we give the company a “buy” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.