Summary
NWL's share price has suffered due to an expensive acquisition and low profitability but likely also due to tax loss selling and the high short interest.
The company is financially stable in the short term but also in the long term, especially after having deleveraged as planned.
While profitability has been sub-par in the past, management is planning to rectify the situation. A more manageable portfolio of brands will be of prime importance.
Both my conservative and optimistic discounted cash flow valuations indicate significant upside. Other valuations, taking the market position of NWL into account, signal upside as well.
Introduction
No questions asked – Newell Brands (NWL) owns a sizable portfolio of valuable brands. It belongs to the consumer staples and the consumer discretionary sector likewise, hence qualifying, at least in part, as a defensive stock. Given these facts, a premium valuation could be warranted, as has also been suggested by the rich price-earnings (P/E) ratios observed between Q2 2016 and 2017. However, NWL common stock took a dive after having formed a double top between August 2016 and August 2017. To date, the stock price has fallen by over 70% from the August 2017 high of $55. In this article, I will discuss whether current investors are looking at a reasonable risk-reward situation or are falling victim to an anchoring bias.
A concise summary is presented at the end of each paragraph, aiding the reader who is not interested in the details outlined in this article. I will close with brief concluding remarks and an explanation of my personal stance.
