WhiteWave Foods (WWAV) is on our Hedgeye Consumer Staples Best Ideas list as a LONG and Hain Celestial (HAIN) is on the Consumer Staples Best Ideas list as a SHORT.
With both stocks down roughly -11% over the past week, we wanted to give you our update.
HAIN IS STILL A SHORT. HAIN reported a soft quarter this week that saw a significant slowdown in the organic growth rate to 6%. In addition, the quality of the HAIN’s quarter was extremely weak with a significant increase in the rate of “adjustments” to make the number and a significantly lower tax rate. Given all that, HAIN just barley met consensus numbers.
Both stocks are weak today given the significant slowdown in the natural channel. On this front, HAIN has significantly more exposure to the natural channel. In fact, as WWAV points out HAIN is not even one of the largest 25 companies in conventional channels. While this may provide some upside for future growth, the company is facing significantly greater “better-for-you” competition in that channel.
Another area of concern for HAIN is the UK. The company reported flat revenue growth on a constant currency basis. Given the maturity of the core brands in the UK, at best this business has little organic growth. On a sum-of-the-parts basis, we believe the HAIN UK business is significantly overvalued.
WWAV IS STILL A BUY. In our Black Book presentation we called out the fact that there were going to be short term dips in the stock price. This is one of those dips, and we view it as a Black Friday Super Sale. The stock has come down from $50/share to $44/share in just five trading days.
We feel this stock is being unfairly dinged due to its perceived high correlation with the Natural channel stores such as Whole Foods Market (WFM). In fact, Wal-Mart and its subsidiaries is their largest customer, accounting for 14.6% of total sales, with the top 10 customers together accounting for roughly 44% of sales, making them very well diversified from a customer perspective. Moreover, their brands are leaders in every category they participate; few CPG companies can make that claim, although some will try (HAIN).
Bottom-line, WWAV is still on our Hedgeye Consumer Staples Best Ideas list, and will probably be on the list until it is acquired.
Please call or e-mail with any questions.
Howard Penney
Managing Director
Shayne Laidlaw
Analyst
