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Tuesday, June 22, 2021

Edgewell Personal Care: A Pandemic Recovery Play

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Personal care products maker Edgewell Personal Care Company (NYSE:EPC) shares have been stagnant throughout the historic rally to new all-time highs in the benchmark SPDR S&P 500 (NYSE:SPY). However, shares may be starting to set-up a breakout as demand for personal care products rises with the economic restarts. As workers return to offices and live social engagements and interactions resume, the demand for grooming and fashion apparel resumes. This is driving the recovery of clothing stores and dine-in restaurants as the approval a COVID-19 vaccine nears. As money rotates from momentum to value recovery plays, prudent investors can still partake in the recovery while Edgewell shares are still consolidating ahead of a breakout.

Q3 FY 2020 Earnings Release

On Aug 4, 2020, Edgewell released its third-quarter fiscal 2020 results for the quarter ending June 2020. TheCompany reported earnings-per-share (EPS) of $0.66 versus consensus analyst estimates for a profit of $0.83, a (-$0.17) per share miss. Revenues fell (-20.6%) year-over-year (YoY) to $483.9 million missing consensus estimates of $533.1 million. The Company managed to reign in $23 million in discretionary spending under Project Fuel for the quarter. Investment in e-commerce and R&D will remain a driver moving forward as proven by the growth in its Amazon (NASDAQ:AMZN) business. The Company will not provide forecasts for the rest of fiscal year 2020 due to uncertainties relating to COVID-19.

COVID-19 Impacts

While some of the product portfolio was positively affected by the pandemic, there were more negative impacts. Edgewell estimates the top-line effects of COVID-19 was (-$85 million) for the quarter. Wet Ones sanitizing wipes saw a 52% YoY increase, while Wet Shave saw a (-14%) YoY sales decline as stay-at-home mandates impacted daily shaving regimens and grooming routines. Suncare products were negatively impacted by COVID-19 responsible for 20% of total company sales and nearly 50% of top line YoY quarterly revenues declines. However, the Company was able to implement 5% price increases across U.S. mass and drug channels. Edgewell was also able to expand market share gains in the U.S. in the Sun Care and personal hygiene wipes categories. The Company has seen weekly sequential sales improvement as economies reopen with notable improvements in Wet Ones and Men’s Grooming segments. This was offset by the distribution losses of Wet Shave in Sam’s Club and Fem Care at Walmart (NYSE:WMT).

CREMO Acquisition

Edgewell acquired grooming business CREMO for $235 million in an all-cash transaction expected to close in 1H 2021. This profitable business enables Edgewell to gain increasing penetration in the most attractive growth categories in men’s grooming. The acquisition complements the Company’s existing brands Jack Black and Bulldog. CREMO premium products accommodate men’s grooming needs including beard care, shaving, body wash, colognes, moisturizers, hair styling, and soaps with high quality “barber grade” ingredients. Men’s grooming is one of the fastest segments of personal care products and demand will improve as consumers return to work and social engagements. As the restart continues to gain steam, much of the declining sales should see a reversal as consumers return to normal schedules and grooming habits. This can dramatically accelerate with the FDA approval of a COVID-19 vaccine. Prudent investors should look for opportunistic pullbacks during this tightening consolidation period ahead of the recovery tailwinds.

Edgewell Stock Price Monthly Chart

Edgewell Stock Price Monthly Chart

EPC Opportunistic Pullback Price Levels

Using the rifle charts on the monthly and weekly time frames provides a broader view of the landscape for EPC stock. The monthly rifle chart has a bullish stochastic mini pup with flat 5 and 15-period moving average (MAs). They are flat because of the completed channel tightening which sets up for a breakout or breakdown. Since the monthly has a mini pup, the forecast is for a breakout towards upside targets $35.02 to $45.31 Fibonacci (fib) level. The monthly rifle chart also triggered a market structure low (MSL) buy above $29.74. In order the monthly indicators to move forward, the weekly rifle chart must align first, notably the stochastic. The weekly stochastic has stalled with the tight MAs forming a make or break (MOB) formation after triggering the weekly MSL above $27.37. This MOB period can bestow opportunistic pullback price levels at the $29.74 monthly MSL+ fib, $27.56 fib + weekly MSL and the $26.72 fib. The recent sell-off in the SPY and Nasdaq 100 has been a boon to the laggard segments underscoring the economic restarts. Bottom line, personal grooming product demand should improve as workers return to offices and resume social engagements even from a distance. An FDA approval for COVID-19 can accelerate this even faster as the recovery narrative grows wings.

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