Summary
Newell Brands is trading at a historically low valuation.
Investors should look to benefit from Carl Icahn's investment in the company.
Newell Brands has recently started buying back stock.
Newell is divesting brands to pay down debt and to deleverage significantly while refocusing their strategy.
Investment Thesis
We believe investors have overreacted to trade war risks and have largely miscalculated the effects of tariffs on Newell Brand's (NWL) revenue and earnings. We believe that Newell will be able to pass on costs of tariffs to consumers as alternative products will likely feel similar pressures from tariffs. In other words, consumers will not have more affordable substitutes and will likely have to pay the increased costs from tariffs unless Newell can find better and more cost-effective inputs that are not subject to tariffs over time. With analysts too pessimistic, and the stock trading well below book value per share of $ 28.72, reported as of June, we expect this stock to trade above $30 in the next year. Over that period, we will see stock buybacks, deleveraging of the balance sheet, and more favorable sales trends. All of these positives will likely help to push investors back into the stock over the next year. Our price target is $30 for the stock which we think makes the current price of under $22 as of Friday a great value.
