EPC - Edgewell Personal Care: Decline In Progress As Commercial Standing Evaporates
2024-02-18 07:46:33 ET
Summary
- Edgewell Personal Care’s growth has been disappointing, with declining revenue despite acquisitions. The company has lost touch with its target market and appears to be superseded by new entrants.
- Management has poorly executed and made several missteps, contributing to a growing debt balance and declining margins.
- EPC appears wholly unattractive relative to its peers, many of whom are mature businesses and still positioned to grow well and maintain margins.
- We do not believe acquisitions or reorganizations will be sufficient to revitalize the company, primarily due to the ground already lost and the cost associated with catching up.
- EPC stock is trading at a reasonable discount to its peers but appears overvalued compared to its historical average. Given the dire commercial situation, we rate the stock a sell.
Investment thesis
Our current investment thesis is:
- EPC is in a lose-lose situation in our view. The company either acts defensively, cutting costs and seeking to protect margins to stabilize its position first, or accelerates spending and looks to revitalize its brands first. Either way, we suspect the company will be unsuccessful. Consumer trends and interests have changed, with EPC’s brands being passed on by core demographics that are driving growth, in favor of more relatable brands.
- EPC does appear well priced, particularly if you consider its FCF yield and relative valuation, however, we are not convinced. Barring a complete mispricing, low-quality businesses are almost never good investments.