Prestige Consumer Healthcare: Initiating Coverage on Niche OTC Healthcare Manufacturer With $68 FVE

We are initiating coverage on Prestige Consumer Healthcare PBH with a fair value estimate of $68 per share. Our forecast model has a five-year top-line compound annual growth rate of roughly 2% and a slow year-over-year ramp-up in margin.

Prestige Consumer Healthcare is one of the largest pure-play over-the-counter healthcare providers in the U.S. It has a diverse portfolio composed of leading brands in niche consumer health categories. Prestige’s key brands include Clear Eyes (redness relief), Dramamine (motion sickness relief), Monistat (vaginal anti-fungal), and Summer’s Eve (feminine hygiene), and many of its brands enjoy category leadership and recommendations from medical professionals. We expect the firm to grow through product innovations, increasing household penetration, and expanding its e-commerce presence.

In the long term, we continue to forecast low-single-digit top-line growth with a slight improvement in gross margin from supply chain efficiencies and manufacturing productivity improvements. We think the higher gross margin, however, will be somewhat offset by elevated advertising and marketing spending as we expect competition in consumer healthcare over the next five years to get tougher due to large pure-play manufacturers like Kenvue and Haleon having entered the market in recent years.

We assign Prestige Consumer Healthcare a narrow moat rating because we believe the company’s strong brand reputation and pricing power (intangible assets) should continue to support economic profits for the next 10 years. While we believe Prestige lags behind consumer packaged goods giants in broad product channels such as analgesics, cough remedies, and oral care, we believe the company has successfully carved out a meaningful presence in smaller, unique categories and garnered impressive market share. Prestige’s brands have also held their market leadership for over a decade, demonstrating stability of their market share.