On a day in which the S&P 500 lost nearly 3% of its value, Hamilton Beach Brands (HBB) stock jumped more than 28% Monday. As a result of the significant move, HBB entered Barchart’s Top 100 Stocks to Buy in the 52nd position.
With a weighted alpha of 103.38, its near-term momentum still trails its 52-week return of 139.46%. While it might seem like it’s too late to buy the maker of household and specialty housewares appliances’ stock, here’s why you might want to think twice about passing on HBB.
Where It’s Come From
Before I discuss its second-quarter results, let me provide you with some background information about the company.
The Hamilton Beach name comes from the collaboration in the early 1900s between Louis Hamilton and Chester Beach. Their first creation was an electric motor in 1905 that powered kitchen products such as mixers. In 1910, Beach and Hamilton formed the Hamilton Beach Company with Fred Osius in Racine, Wisconsin.
Fast-forward to 1990. Hamilton Beach was acquired by Nacco Industries (NC) and combined with its Proctor Silex business. The company launched an international division in 1996 and became Hamilton Beach Brands in 2007.
In October 2017, Hamilton Beach Brands and The Kitchen Collection (a chain of retail kitchen stores) were spun off by Nacco into its own publicly traded company. For every Nacco Class A and Class B share held, Nacco shareholders got one Class A and Class B Hamilton Beach share.
In October 2019, it announced that it would wind down the Kitchen Collection business, including closing all 160 stores. By April 3, 2020, the division’s remaining assets were distributed to creditors, enabling it to enter 2021 focused on the Hamilton Beach brand.
On April 3, 2020, it traded at $8.20. HBB stock has gained 200% in the four years since. However, it’s still far from its all-time high, around $40, shortly after its October 2017 spinoff.
Record Q2 2024 Results
Its revenue was $156.2 million in the second quarter, 14.0% higher than a year ago. Revenue was higher in the U.S., Mexico, and Latin America, offset by a decline in its Canadian business.
Hamilton Beach's gross margin in the quarter was 25.9%, 590 basis points higher than Q2 2023. Its operating profit was $10.0 million, up significantly from $700,000 a year earlier. Its EBIT margin in the trailing 12 months is 7.8%, the highest in the past decade.
While revenues are expected to increase modestly compared to 2023, its operating profit should be significantly higher than a year ago due to the improvement in gross margins. In 2023, its annual revenue was $625.6 million. Based on 5% growth in 2024, it should generate $657 million in sales with an operating profit of $43 million, 23% higher than a year ago.
“Progress with the Company's six strategic initiatives is expected to drive revenue growth, expand margins, and generate strong cash flow over time. The initiatives are focused on increasing sales of innovative, higher priced, higher margin products in the Company's North American market. The following is a summary of each initiative,” stated its July 31 press release.
Business is strong and getting stronger.
Where’s It Going?
As it said in its press release, it has six strategic initiatives to grow sales and cash flow.
The primary focus is on growing its Hamilton Beach and Proctor Silex brands in the North American market by introducing new products and expanding its distribution in the U.S., Canada, and Mexico.
As part of its margin expansion, it will continue to push into the premium market through its Hamilton Beach Professional and Weston brands. It licenses the brands to other companies, such as Wolf Gourmet countertop appliances and Clorox True HEPA air purifiers. It also has the rights to design and sell Bartesian cocktail makers and Numilk plant-based milk makers.
Finally, the other of the six strategic initiatives is to grow its Hamilton Beach Health business. It created the brand in 2021, its acquisition in February of HealthBeacon Plc. This Irish-based medical technology company uses smart technology to keep patients up-to-date on injectable medications.
The company’s patented technology has tracked over 800,000 injections in 15 countries worldwide. Hamilton Beach intends to use this technology, leveraging the Hamilton Beach brand, to grow its usage in these 15 countries while also expanding where it’s available.
“This acquisition is a key step in support of our strategic initiative to expand in the fast-growing home health and wellness market, and it strengthens our participation in the home medical category,” Hamilton Beach CEO Gregory H. Trepp said in the February press release.
Given that Hamilton Beach was already distributing the product in the U.S., it wouldn’t be a stretch to expand it elsewhere.
Its business has never been stronger, yet its enterprise value of $402 million is a reasonable 7.78x its EBITDA. In the weeks and months ahead, I could see it continuing to move up Barchart’s ranking of the Top 100 Stocks to Buy.
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