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On Tuesday, Morgan Stanley (NYSE:MS) adjusted its outlook on Edgewell Personal Care shares (NYSE:EPC), reducing the price target from $35.00 to $32.00, while maintaining an Underweight rating. The firm’s analysis followed Edgewell’s recent stock performance, which saw a 9.5% drop in contrast to a 0.7% rise in the S&P index, triggered by a shortfall in fiscal first quarter earnings per share (EPS).
Despite the initial negative reaction to the earnings miss, Morgan Stanley regards the first-quarter results as acceptable on an underlying basis. The company maintains solid financial health with a current ratio of 1.66, indicating strong liquidity. However, the firm places greater emphasis on Edgewell’s decision to lower its full-year EPS guidance to the lower end of the previous range. This revision was attributed to foreign exchange pressures, an inability to offset these with pricing, and a forecast for weak organic sales growth (OSG) in the second quarter, which the company partly ascribes to timing issues. InvestingPro subscribers can access 10+ additional expert tips about EPC’s financial outlook and market position.
The report highlights that Edgewell’s OSG remains subdued, continuing to reflect softness in North America due to lackluster category trends and market share losses. These issues are compounded by an aggressive promotional industry environment and drug store channel challenges, despite Edgewell experiencing solid international growth that aligns with its peers.
Specifically, Edgewell’s first-quarter OSG declined by 1.3% year-over-year, a figure that is notably impacted by a positive 3.1% comparison to the previous year due to timing. When examining the company’s performance since 2019, Edgewell’s 1.4% compound annual growth rate (CAGR) in OSG for the first quarter falls well below that of its peers, signaling structural challenges to top-line growth, particularly in the North American market.
Morgan Stanley’s stance remains cautious as it projects a modest 1% decrease in its fiscal year 2025 EPS estimate for Edgewell. This is primarily due to the foreign exchange headwinds, although partially offset by a reduction in pension expenses. The new price target is based on an 8x 2026 EV/EBITDA multiple, which is on the lower end of the spectrum compared to Edgewell’s peers, reflecting ongoing struggles in organic sales growth. The company currently trades at an EV/EBITDA of 7.91x and maintains a strong free cash flow yield of 13%. For a comprehensive analysis of Edgewell’s valuation and growth prospects, investors can access the detailed Pro Research Report available on InvestingPro.
In other recent news, Edgewell Personal Care has reported a 2.1% decline in sales for its first quarter of 2025, falling short of market expectations. The sales dip was influenced by roughly $4 million in currency-related setbacks, with organic sales also decreasing by 1.3%. Despite these challenges, the firm’s management highlighted its international growth and the positive trajectory of its Right to Win businesses.
The company’s adjusted gross margin contracted by 69 basis points, and the adjusted operating margin fell by 166 basis points. Edgewell’s adjusted EBITDA was $45.9 million, slightly below the consensus estimate of $46.8 million, and adjusted earnings per share of $0.07 missed the expected $0.12.
In light of these results, Canaccord Genuity adjusted its outlook on Edgewell shares, reducing the price target to $40 from $53, while maintaining a Buy rating. The firm cited currency headwinds and underperformance in certain product categories as reasons for the adjustment.
Despite the current challenges, Edgewell’s organic sales forecast remains positive, with expectations of a 1-3% increase for the fiscal year 2025. However, the firm’s management revised its full-year 2025 guidance to reflect significant currency headwinds. These are recent developments that investors should keep in mind.
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