Prestige Brands Holdings, Inc. (PBH): An Above Average Company At Above Average Prices

Johnson & Johnson is the manufacturer of the Visine brand of eye drops, which competes with Prestige Brands’ Clear Eyes line of products. According to Prestige Brands’ most recent fiscal 2013 10-K and its 2012 10-K, Visine is currently the number one brand in the allergy/redness relief segment with 24.1% market share; Clear Eyes is a close second with a 19.9% market share. However, it is worth highlighting that Clear Eyes has closed the gap with Visine, improving its market share from 17.2% a year ago, while Visine’s market share is down significantly from 29.7% previously. This improvement in market share for the Clear Eyes brands is consistent with I have written about how Prestige Brands has managed the products.

Prestige Brands Holdings, Inc. (NYSE:PBH) also derives about 14% of its revenues from household cleaning products, and competes with Clorox in this area. Despite facing threats from private label products, Clorox has managed to hold its ground. According to its most recent investor presentation, its brands in bleach, water filtration and charcoal have more than 60% market share, successfully fending off the challenge from private labels. Moreover, it enjoys pricing power, with more than 95% of price increases implemented since 2005 still intact.

Conclusion

I will love to buy any stock with best-in-class operating and free cash flow margins among its peers, but not at any price. At 1.9 times PEG, Prestige Brands is overvalued. In addition, it is highly geared with a gross debt-to-equity ratio of 200% and does not pay a dividend. At this moment, I will have to say no to this stock.

The article An Above Average Company At Above Average Prices originally appeared on Fool.com and is written by Mark Lin.

Mark Lin has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson. Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.