The Fair Value Report

Newell Brands, Inc.

My Disclaimer
I am a value investor. I am not a licensed or registered investment professional. I currently have NO investment position in the company mentioned in this report. Financial statement data was obtained from the company’s most recent SEC 10-K filing.

Past and future gains contained herein are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Valuations, while given as a specific amount, are always within a valuation range. Investors should be aware that any investment has the potential for loss, and past performance is no guarantee of future results.

The intent of this report is to provide the reader with a brief overview of my various company valuations so they can independently determine their current level of investment interest.

What They Do
Newell Rubbermaid is a marketer of consumer and commercial products marketed under a portfolio of brands, including Sharpie®, Paper Mate®, Parker®, Waterman®, Dymo®, Rubbermaid®, Contigo®, Levolor®, Goody®, Calphalon®, Irwin®, Lenox®, Rubbermaid Commercial Products®, Graco®, Aprica®, Baby Jogger®, Yankee Candle®, Crock-Pot®, FoodSaver®, Mr. Coffee®, Oster®, Coleman®, First Alert®, Rawlings®, Jostens®, K2®, Marker®, Marmot®, and Völkl®. Listed competitors include ACCO Brands (NYSE: ACCO) and Tupperware Brands (NYSE: TUP).

Acquisitions Highlights
The company listed no new business acquisitions in its most recent SEC 10-K filing.

Divestitures Highlights
During 2018, the company announced it was exploring strategic options for its industrial and commercial product assets, including the Waddington Group, the Process Solutions business, the Commercial Business and the Rexair business, as well as non-core consumer businesses, including Jostens, Pure Fishing, Rawlings, Goody and The United States Playing Card Company.

During the third and fourth quarters of 2019, the company’s Board of Directors approved the decision not to continue pursuing the sale of the Commercial Business. These businesses, with the exception of the Commercial Business were classified as discontinued operations. During 2018 and 2019, the company sold Goody, Jostens, the Process Solutions business, Pure Fishing, Rawlings, Rexair, Waddington, The United States Playing Card Company and other related subsidiaries.

Subsequent Events
There were no subsequent events between the company’s fiscal year end and the filing of its most recent 10-K.

Short-Term Target
My current short-term target for the stock is $17.44 with an initial trailing stop set at $17.01. Based on a recent price of $17.27, upward price movement will find resistance at $18.00 and again at $19.33, with final resistance found at $20.31. Downward price movement will find support at $16.51 and again at $15.70, with final support found at $14.91.

Volatility Adjustment
There are different metrics available to help investors determine the volatility of a particular stock as compared to the volatility of the market as a whole. To me, the beta ratio is the metric that is the most representative of a stock’s volatility. A beta ratio of less than 1 means that the security’s price will be less volatile than the market, while a beta ratio greater than 1 indicates that the security’s price will be more volatile than the market. Basis my current beta ratio for this stock of 1.05, my volatility adjustment to recent pricing is $1 per share, making my current volatility adjusted price $16.

Quality of Earnings
A company’s earnings can be impacted by a variety of sources unrelated to the company’s current day to day operations. Discontinued operations, tax refunds, depreciation, and impairment for example, may distort a company’s operating income and consequently its fair value. Investors should always explore the sources of a company’s operating income to better understand potential valuation impacts. Of the company’s per share earnings of $3.36, $2.45 per share came from income taxes and/or minority interests.

Key Performance Indicator Rating
I use key performance indicators (KPIs) as a barometer to measure the effectiveness of management. Several of the metrics that I use are the tangible asset ratio, return on invested capital, free cash flow growth, earnings growth, debt growth, the dividend payout ratio, and the cash conversion cycle. Admittedly, my use of these and other metrics as a way to determine the effectiveness of management is subjective. Be that as it may, for me, they work. Based on a 0-105 scale, my KPI for this company is 72.

Five Year Growth of $10K
Had you invested $10K in this company five years ago (12/31/14), you would have received 263 shares of stock with a cost basis of $38.09 per share. Had you held the stock for five years and then closed your position (12/31/2019), you would have closed at $19.12 per share. During that holding period you would have collected $225 in regular and special dividends, and your initial $10K investment would have returned to you $5,020 a loss of 50% excluding regular and special dividends.

Annual Shareholder Return
I calculate annual shareholder return by subtracting the stock price at the close of business on the last day of a company’s fiscal year, from the stock price at the start of business on the first day of the company’s fiscal year, plus any dividends paid during that period, and then dividing the result by the opening stock price on the first day of a company’s fiscal year.

For fiscal 2019, the company spent $0 per share buying back company stock and paid a common stock dividend of $0.92. In addition, the company had a year-over-year annual price appreciation of $0.53, and a year-over-year annual shareholder return of 8%.

Over the prior five year period, the company spent an average of $1.22 per share buying back company stock and paid an average annual common stock dividend of $0.81. Additionally, the company had an average annual price appreciation of $(2.76), and an average annual shareholder return of (5)%.

Cost of Common Equity
The cost of common equity is the minimum annual rate of return an investor should expect to earn when investing in shares of a particular company. I calculate this by adding the thirty-year treasury yield to the beta ratio for the stock multiplied by my default equity risk premium. My cost of common equity for this stock is 4.38%.

Insider Transactions
The SEC classifies insiders as “management, officers or any beneficial owners with more than 10% class of a company’s security.” Insiders are required to abide by certain rules and fill out SEC forms every time they buy or sell company shares. In addition, to prevent insider trading, or benefiting illegally from material non-public information that their positions give them access to, the law prevents insiders from deposing of shares within six months of their purchase. This effectively bars insiders from profiting from quick trades based on their “insider” knowledge.

Over the past 12 months, the company has recorded 63 insider trades involving 4,176,822 shares of stock. Of the total insider trades, 49 were Buys involving 3,933,903 shares of stock, and 14 were Sells involving 242,919 shares of stock, creating an insider buy to sell ratio of 16 to 1..

Enterprise and Equity Values
As a fair value investor, I am looking for companies that have low debt and generate lots of cash. To me, the easiest way to highlight a company’s ability to generate cash is to compare the Enterprise Value to the Equity Value, what I call my E2E Ratio. What I am looking for with this ratio is something close to or above 1, meaning the company generates cash at a rate equal to or faster than it generates debt. For this company my enterprise value (market cap plus debt less cash) is $31 and my equity value (market cap plus cash less debt) is $3, making my E2E Ratio, 0.11.

Risk/Reward Ratio
I determine my risk reward ratio by subtracting the current price from my terminate target and then dividing that result by my initiate target less a price fluctuation variable of 20%. What I am looking for with this ratio is a value of 5 or greater. My risk/reward ratio for this stock is 7.

Prior Average Valuations
My average valuation for the prior five year fiscal period was $28. The stock price during that time period averaged $35, earnings averaged $2.72 per share, and the average PE Ratio was 13. The current PE Ratio is 5.

Fair Value Investing
It is important to remember that the current fair market value of an equity is the price negotiated between a willing buyer and a willing seller. This fair market value is not the fair value of the associated company, but the negotiated value of a single equity trade.

To a fair value investor, consideration is given to a company’s overall financial condition including past and future earnings growth, free cash flow, both book and tangible book values, net current asset value, and many other valuation metrics in order to determine a fair value for the company as an on-going concern.

Accordingly, my most recent fair value estimate for this stock is $23. My worksheet target prices reflect this fair value estimate.

Newell Brands, Inc. (NASDAQ: NWL) – FYE 12/2019 – FAIRLY VALUED – The stock is currently trading at levels above my most recent $14 initiate target, but below my most recent $29 reduce target. Please See Linked PDF Worksheet.

There you are, short and, hopefully, to the point.

Revised on 08/12/2020