Canaccord Genuity Downgrades Spectrum Brands (SPB) to Hold, 'Better Q1, but the market is already pricing in a recovery'

Canaccord Genuity analyst Brian McNamara downgraded Spectrum Brands (NYSE: SPB) from Buy to Hold with a price target of $86.00 (from $83.00).

The analyst commented: "Before the market opened this morning, Spectrum Brands Holdings (SPB) reported better results across the board with sales ~3% better than consensus, with each segment better and Home & Personal Care (HPC) declines better than expected. Organic sales fell -4.6%, driven by lower consumer demand for kitchen appliances in HPC, softness in Pet Specialty, and SKU rationalization in Global Pet Care (GPC) and HPC. Profit metrics were much better than Street estimates, driven by pricing and cost reduction actions more than offsetting lower volumes and investments. With lackluster Q4 results in November, we kept our Buy rating as we expected the company to be more aggressive with share buybacks — and it was, having repurchased $826m in stock at an average cost of ~$75/share since the HHI deal closed last June. Acknowledging there’s plenty more in the arsenal (we estimate > $700m or >8m shares at current prices) to hit its target leverage ratio of 2.0x-2.5x, we believe this is now more fully appreciated by the market, with the stock up >25% since then. We also noted the company would need to make material progress in its P&L in 2024 for us to maintain our constructive stance, and the top line recovery — which we believe is priced in at this point — is taking longer than we thought. We believe Q1 results — where organic sales fell 4.6%, yet EBITDA increased 33% — are an aberration and the company will need to demonstrate meaningful and consistent top line growth for the multiple to expand much further."

Shares of Spectrum Brands closed at $86.10 yesterday.

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