Why Prestige Brands Holdings Inc. 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 developer and supplier of over-the-counter health care and household products, jumped as much as 20% after announcing the acquisition of privately held Insight Pharmaceuticals before the opening bell.

So what: Under the terms of the deal Prestige Brands will acquire Insight for $750 million in cash to expand its over-the-counter product line. The press release notes that Prestige will also acquire about $100 million in tax attributes which will partially offset its $750 million buyout price. Insight's products include Monistat, which is a yeast infection treatment, the EPT home pregnancy test, and a number of other feminine care products. This marks the second transaction this month for Prestige, which noted on April 15 that it was buying Hydralyte, an over-the-counter hydration therapy in Australia and New Zealand.

Now what: Although Prestige's press release was incredibly short and made no mention of whether or not this would reduce costs and be immediately accretive to earnings, I would have to assume that it'll be accretive to earnings fairly quickly. This is good news for shareholders because Prestige's organic growth had essentially stalled. While it's great to see the company being proactive and purchasing new products lines and creating different avenues of cash flow it still remains to be seen if it can translate this into organic growth a year or more from now. With that being said, I can't say I'm a huge fan of this stock following today's meteoric rise from a valuation basis, and I'll certainly be sticking to the sidelines.

Prestige shares soared today, but they may be no match to keep pace with this top stock in 2014
Give me five minutes and I'll show how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks 1 stock with amazing potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on the upcoming year's most lucrative trends. Last year his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303%! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.

The article Why Prestige Brands Holdings Inc. Shares Soared originally appeared on Fool.com.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story