Hain Celestial in Neutral Lane - Analyst Blog

A leader in natural food and personal care products categories with an extensive portfolio of well-known brands, The Hain Celestial Group Inc. (HAIN) offers investors one of the strongest growth profiles in the industry. The stock is poised to surge once the economy rebounds and demand for healthier and natural food improves.

Acquisitions have been a key part of the company's strategy to increase its market share. They have not only expanded the company's geographical presence but have also provided opportunities to cross-sell products in the U.S., Canada and Europe. Hain Celestial leverages its healthy balance sheet to make strategic acquisitions.

Among the recent acquisitions, Hain Celestial added World Gourmet Marketing including its Sensible Portions brand of Garden Veggie Straws, Pita Bites and other snack products. The company also acquired Churchill Food Products Limited that manufactures and distributes food-to-go products in the United Kingdom. The company purchased The Greek Gods brand as well.

Complementing the company's acquisitive streak is a number of operational initiatives to improve performance to put itself on the growth trajectory. Hain Celestial's Stock Keeping Unit (SKU) rationalization program has helped eliminate SKUs based on lower sales volume or weak margins. Management focuses on improving profitability through new product introductions and cost cuts.

However, sluggish economic recovery and persistently high unemployment levels may dampen consumers' confidence and spending behavior.

The company's customers remain sensitive to macroeconomic factors including interest rate hikes, increase in fuel and energy costs, credit availability, unemployment levels, and high household debt levels, which may negatively impact their disposable income triggering a shift in focus from higher priced organic products to cheaper private label brands. This may adversely affect Hain's top-line growth.

Given the pros and cons, we prefer to be Neutral on the stock. Hain Celestial, which competes with General Mills Inc. (GIS) and Kraft Foods Inc. (KFT), holds the Zacks #3 Rank, which translates into a short-term Hold recommendation, and correlates with our long-term view.