ACCO - ACCO Brands (ACCO) - Post Call Commentary Favorable Risk Reward
Operating Environment Trending Positive. As we mentioned last quarter, the overall operating environment continues to trend in a positive manner, although there remain some potential hiccups. The commercial business continues to improve with the return to the office of workers, worldwide economies are improving, and school instruction continues to return to in-classroom instruction. Commodity inflation and logistics remain the biggest concerns.PowerA Continues to Impress. PowerA contributed $57 million of revenue in 3Q, up from $51 million in 2Q. Notably, the higher PowerA sales were in spite of constrained availability of gaming consoles, sales of which drive PowerA sales. Although management lowered full year expectation for PowerA growth to 20% from 25% due to the lack of gaming consoles, this remains above the 15% originally forecasted and we expect the sales to just shift to the right once console supply constraints abate.Debt and Acquisitions. ACCO's net debt leverage ratio fell to 3.8x at the end of 3Q, down from 4.2x at end of 2Q. Year-end, the ratio should be 3.5x or less, with a long-term target of 2.0-2.5x. As ACCO deleverages, the potential for additional accretive acquisitions improves, in our opinion. We believe management will continue to target the consumer goods space.Updated Projections. Management continues to project record sales and strong profit for 2021. We are projecting 4Q21 revenue of $545 million, up from our prior $535 million estimate, and adjusted EPS of $0.50, up modestly from our estimate of $0.46. For the full year, we now expect revenue of $2.0 billion, reported EPS of $0.89, and adjusted EPS of $1.37.Maintain Outperform. We are maintaining our Outperform rating on ACCO shares and our 12-month price target of $12.00. At our $12.00 target, ACCO shares would trade at 8.8x our 2021 adjusted EPS estimate, 1.1x on an EV/Sales basis, and 7.6x on an EV/EBITDA estimate. And investors can enjoy a 3.4% dividend yield while waiting for a full return to normalcy to pan out. Read More >>