Analyst Note| Rebecca Scheuneman, CFA |
The most notable takeaway from no-moat Hain Celestial’s fiscal second quarter is that the firm’s efforts to drive higher operating margins are exceeding our expectations. Its second-quarter adjusted operating margin increased 330 basis points to 9.1%, ahead of our 8.4% estimate for fiscal 2021. The elimination of low-margin products, divestiture of less profitable businesses, and operating efficiencies lead us to increase our estimated 3-year forward average gross margin by 70 basis points to 26% and our operating margin by 50 basis points to 9.9%. As such, we expect to make a high-single-digit percentage bump to our $31 fair value estimate. Even so, with Hain’s shares trading above our revised intrinsic value, we suggest investors await a more attractive risk/reward.