Why Prestige Brands Shares Soared
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Prestige Brands , a marketer of over-the-counter health care and household cleaning products, jumped as much as 14% after it announced the acquisition of Australia's Care Pharmaceuticals.
So what: Although financial terms of the deal weren't announced, the press release does note that Care Pharmaceuticals generates approximately $18 million in revenue annually from its core line of over-the-counter health products -- most notably Fess, which treats cold and allergy symptoms. Even more important, this acquisition gives Prestige Brands the opportunity to rapidly increase its Asia-Pacific presence. On the heels of the announcement, research firm Sidoti upgraded Prestige Brands to "buy" from "neutral" and hiked its price target to $41 from $32, implying 35% upside from yesterday's close. Research firm B. Riley joined the party as well, initiating Prestige with a buy rating and a $38 price target.
Now what: Moving into the rapidly growing Asia-Pacific region is a smart move for Prestige, which certainly could use the spark, with organic growth of its over-the-counter products drying up domestically. In the fourth quarter, Prestige Brands' 14 core OTC products delivered 9.3% organic growth. For this fiscal year, Wall Street anticipates that growth will be nearly flat. I'm not sold on Prestige's lofty valuation just yet, as acquisitions take time to integrate and there are often some "hiccups" involved for the acquiring party. However, I would certainly recommend keeping a watchful eye on Prestige Brands by adding it to your Watchlist.
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