Deep Value High Yield Newell Brands Is Ready To Bottom

Newell Brands (NASDAQ: NWL) represents a deep value and a high yield compared to the broad market and many of its peers in the consumer realm, and the stock price looks ready to bottom. After correcting more than 30% from the 2021 high, the company appears to be on track to grow the business and continue paying the stout 4.55% dividend yield as well. While there is risk in the business due to FX headwinds and the growing impact of inflation on consumer spending. 

Is Newell Brands Ready To Bounce Higher? 

As far as competition goes, there are competitors in the space with great brands in their portfolios but neither of the two main competitors is an attractive investment. Tupperware (NYSE: TUP) is a non-starter with very spotty revenue and earnings and tremendous headwinds for the business. Lifetime Brands (NASDAQ: LCUT) offers a deeper value than Newell Brands but a much lower dividend yield. Walmart (NYSE: WMT) and Target (NASDAQ: TGT), the two highest-profile retailers carrying many of Newell Brands products, trade at 19X and 22X earnings while paying out less than half the yield as does Kroger (NYSE: KR), which offers at least some value versus the broad market. 

Newell Brands Lowers Guidance, But … 

Newell Brands had a good quarter despite lowering the guidance and the guidance isn’t as bad as it looks. As far as the 2nd quarter went, the company brought in $2.53 billion in revenue for a decline of 6.5% versus last year but this includes divestitures. On an organic basis, core sales are up 1.7% with 4 of the 7 segments showing positive growth on top of last year’s high double-digit comps. The revenue missed the consensus estimates, however, but by a slim 40 basis points which is easy to overlook given the margin strength. The takeaway from the segment results is that operations were strong in core business but the company is trimming underperforming locations and businesses in an ongoing effort to improve cash flow and margin. 

The company’s margin held steady on a gross basis but improved at the operating level and produced healthy results for the company. The operating margin improved by 100 basis points versus last year and the adjusted margin by 120 to drive earnings of $0.49 and $0.57 which are both ahead of expectations. The GAAP $0.49 grew by 6.5% over last year while the adjusted grew at a slower pace but still outpaced the consensus by more than 2000 basis points. The takeaway here is the earnings and cash flow are strong.

The guidance is where the difficulty lay but the price action looks like the market is shrugging it off. The good news is the company is maintaining the outlook for top and bottom line results, the bad news is that FX headwinds are expected to cut into the results and produce reported results below the consensus. While bad news, FX headwinds don’t reflect the strength of the underlying business, and the dollar has been coming down ever since the ECB began its rate-hiking agenda. With inflation running rampant globally, it is likely the ECB and other central banks will raise rates to counter it and counter the dollar’s advance as well.  This scenario has the dollar holding steady if not moving lower and that could easily result in bottom-line outperformance for Newell-Brands down the road. 

The Technical Outlook: Newell Brands Is Trying To Bottom

Newell Brands shares have been in a correction for several quarters but appear to be at the bottom now. The price action is forming what looks like a Head & Shoulders Reversal pattern and one that could lead the market into a new trading range if not into a full reversal. The price action is trading above the short-term moving average as well, and the average is providing support at new, higher levels that over the past few weeks. Assuming the market follows through on this action, the stock price will probably move up to the $21 or $22 level before hitting resistance. If the market can get above that level a move up to the $26 level is possible. If not, this stock will probably remain range bound until later in the quarter least.