Prestige Brands vs. Church & Dwight: Where Should You Invest?

In the big business of consumer goods, often smaller growth alternatives are better investments, but which is worth your money?

Apr 24, 2014 at 8:00AM

It is exceedingly rare to stumble across a small company with a large brand presence among consumers. Such companies are unusual since strong brand power usually means an established consumer base and a large global footprint. However, with consumer goods companies Prestige Brands (NYSE:PBH) and Church & Dwight (NYSE:CHD), investors may have two opportunities to invest in small and mid caps with large portfolios of popular over-the-counter health care and household cleaning products.

Images

Source: Church & Dwight 

Small companies, big brands
For a company with a market capitalization of only $1.4 billion, Prestige Brands' product lineup is especially impressive. The company owns popular brands like Luden's throat lozenges, Clear Eyes solutions, and Comet cleaning cleanser.

While Church & Dwight's product lineup, which includes brands like ARM & HAMMER, OxiClean, and Trojan, is more impressive, the company's market capitalization of $9.5 billion is also much larger.

However, both companies are relatively small compared to typical industry behemoths.

New products yet to kick start growth
Prestige Brands has grown over the years through a combination of organic growth and acquisitions. The company's core brands account for approximately 70% of total revenue and are constantly being supported by new product introductions. The company brings three to five significant new products to market on average each year. 

Recently, Prestige Brands announced that it would acquire Australian brand Hydralite, a leader in OTC oral rehydration. The company will become part of Prestige Brands' Care Pharmaceuticals division and will help to double the segment's annual revenue and be accretive to overall fiscal 2015 earnings. 

Despite new products, Prestige Brands has struggled in fiscal 2014. The company is projected to experience an overall 2.9% decline in sales and flat earnings per share performance in the current year. Management has attributed much of the weakness to three unforeseen problems.

Chief executive officer Matthew Mannelly explained, "There were a combination of things that came together that has affected our business in the short term. And those things are, specifically, as I said, the soft retail foot traffic that's led to significant retail inventory reductions that have been publicly stated by a number of the leading retailers, plus the returning competitive pediatric brands, which we have been talking about for several months, plus the weak cough/cold season." 

Fiscal 2015, which begins in a month for Prestige Brands, is expected to be better as the company is expected to grow sales 1.3% and earnings 6%. 

Huge overseas potential
On the other hand, Church & Dwight is doing much better on the growth front. The company is projected to grow revenue 3.2% and EPS 9% in fiscal 2014. Additionally, the company's growth estimates only go up in fiscal 2015, to 3.6% and 10.5% respectively. 

One of the biggest potential drivers of growth for Church & Dwight going forward is the company's methodical expansion overseas. In 2013, only 17% of Church & Dwight's revenue came from international markets. While not a huge number, it does represent a large increase from 2001 when only 2% of revenue was derived outside of the United States. 

Management's strategy is to focus on the company's six most lucrative international markets at the present time. The idea is to build up brand strength and awareness in key markets and then expand organically from there. With much of the world still untapped for Church & Dwight, the company's growth potential appears large. 

Header Ludens

Source: Prestige Brands 

Bottom line
Although Prestige Brands and Church & Dwight both represent small alternatives to the typical large industry conglomerates, only one company needs to be owned by investors.

Despite being much larger, Church & Dwight is growing at more robust levels compared to Prestige Brands. With more powerful brands and a clear strategy for international growth, Church & Dwight is a growth investor's best option in the consumer goods space.

3 stocks to own for the rest of your life, is Church & Dwight one of them?
As every savvy investor knows, Warren Buffett didn't make billions by betting on half-baked stocks. He isolated his best few ideas, bet big, and rode them to riches, hardly ever selling. You deserve the same. That's why our CEO, legendary investor Tom Gardner, has permitted us to reveal The Motley Fool's 3 Stocks to Own Forever. These picks are free today! Just click here now to uncover the three companies we love. 

Philip Saglimbeni has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers